If you’ve ever considered using your money to buy stocks, cryptocurrency, or other assets before, then you’ve probably come across these two words: investing and trading. On the surface, these two can seem as if they’re the same exact thing. However, there are a few differences that are important to know.
In this article, we will take a look at the difference between investing and trading.
What is investing?
The Investopedia definition for investing is “the act of allocating resources, usually money, with the expectation of generating an income or profit.” Some different ways that you can invest money are starting a business or buying assets (such as stocks or real estate) in hopes of reselling them later at a higher price.
The main goal of investing is to build wealth gradually over an extended period of time. Essentially, an investor wants to buy assets (gold, real estate, stocks, etc.) and let them grow in value over time.
What is trading?
Trading (usually done with stocks or cryptocurrency) is very similar to investing. Traders are still interested in buying assets like stocks, cryptocurrency, or commodities and selling them for a profit. Traders usually don’t buy real estate because it takes much longer to buy and sell a property than it does for a stock.
The main goal of trading is to take advantage of both rising and falling prices to enter and exit the market over a shorter timeframe. In this sense, the trader tries to anticipate the movements of prices (in both directions) so that they can make a quick profit. Most traders will buy and sell multiple assets in a single day which is why it’s commonly referred to as “day trading”
Please be aware that all trading involves risk. 67-75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. This content is for educational purposes only and is not investment advice.
The main differences
The main difference between trading and investing is the length of time that each person holds an investment for. For example, let’s say an investor and a trader are both interested in buying the same stock:
- The investor is probably interested in buying the stock and holding it for at least a few months but most likely several years. They’re excited about the long-term potential of the company and think that the stock will be worth significantly more in the future than it is now. By buying the stock and holding it for years, they plan to make a substantial profit over the long-term.
2. The trader is most likely anticipating a sharp rise or fall in the price of the stock. They might know that the company is releasing its earnings today and think that the price will sharply increase. They might buy the stock in the morning and then sell it directly after the earnings report, (hopefully) collecting a nice profit from the sell. By buying and selling lots of different stocks throughout the day, the trader makes a small profit on each trade every day.
We hope that you’ve found this article valuable when it comes to understanding the differences between investing and trading! If you’re interested in signing up to an investing or trading platform head over to our guide on the 7 steps to start investing and how you can get free stocks.
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