Difference Between Trading and Investing

The equity market can be a great place to create wealth if you make the right decisions and use the right strategies. But not all investors make the right choices and use the same strategies to maximize their profits. There are many strategies and approaches that work best for certain investors in the equity market. These are Trading and Investing. What are the differences between day trading or investing? Let's first examine what day trading is and how investing works in the stock market.

What does "Trading” mean in the Stock Market?

Let's start by understanding what trading means in terms of the stock exchange. Day trading is a strategy that allows an individual to sell and buy shares in a short time span. Day trading allows traders to determine their loss or profit margin and close all positions before the market closes.

What's "Investing" in Stock Markets?

Let's now look at what it means to "invest" in the stock exchange. Investing in the stock market is usually the act of purchasing and holding shares for a long time in order to make long-term profit. The stock market is able to 'ride out' downtrends until the market stabilizes, even though it fluctuates. Investors eventually determine the profit margin after many years or even decades.

Differences between Trading and Investing

Once we understand the basics of day trading and investing in markets, it is now time to identify the differences. Both approaches are suitable for different investors, and each has its own set of benefits and features. Here are the main differences between investing and trading.

1. Time frame: This is the first distinction between these two approaches. Day trading is when a person holds shares in a company for a short time. Trades are carried out every trading day. Day traders capitalize on daily trends and trade on minor price fluctuations.
Stock market investors buy shares in the hope of keeping them as long as possible. The stock market invests with a long-term view, such as decades or even decades. It is not affected by price fluctuations in the short-term.

2. Risk Factor: Trading and investing both rely heavily upon the movements of markets and so come with their fair share of market-linked risks. Day trading is more time-consuming and every sale or purchase is critical. Day trading can bring you high returns on a good day. On the other hand, it can lead to unexpected losses.
There are different risks involved in investing. Because the investment is long-term, investors can keep a stock until the market is favourable enough to let them sell it. Although the returns may be lower than day trading, there is less risk.

3. Technique: Trading vs. investing is often compared to a "skill vs. an art" comparison. Day trading requires that an individual can make quick decisions, understand the market timing and select each stock carefully. Every decision is an expression of his market knowledge. Learning day trading is a way to develop a skill.
However, investing in stock markets is a long-term process that takes patience, time and a keen eye to the market. It takes careful analysis and a steady and slow approach. Stock market investing can be compared to learning an art.

Conclusion
Day trading and investing can both be profitable ways to trade the stock market. The decision of which approach to use depends on the individual's risk appetite, investment horizon, and investment style.