What Is The Difference: Investing VS Trading

What Is The Difference: Investing VS Trading
By Charles R Woods

Investing vs Trading: What is the difference?

This is a commonly asked question that beginners have when they want to start managing their own brokerage accounts. Since most people are interested in stocks, I will use equities to explain the difference between these two strategies. Realistically, this goes far beyond equities, and there are many investment or assets types that I could use as an example.

What is an Investor?

A simple explanation of an investor is someone who buys stock in a company to make money off the companies operations. You commonly hear the terms Dividend Investor or the Buy and Hold Forever Strategy. This is someone who buys a stock because they think the company has the potential to grow in the long run. In macroeconomics, the long run is defined as over a year or more than one operating cycle. An investor will have a long-term outlook and some investors like Warren Buffet will buy and hold the same company for a lifetime.

What Does A Winning Investment Look Like?

A smart investor will look at the accounting and the fundamentals of a company because that is the way to see how a company has done in the past. Then they can speculate on how this company will do in the future.

The fundamentals of a business can be anything that gives a business an edge over their competition. For some companies, this won’t be things that directly show up in their financial statements. For example, I invested in a REIT because they had the best management team. This management team was more experienced than their competitions and this investment outperformed all the other REITS.

From an accounting perspective, a good investment will have an increasing net income, a balance sheet with improving assets, and a great looking cash flow. You don’t need to go to school and learn everything about financial statements but knowing the basics will help you with making informed investment decisions.

When someone holds a stock they want to make a profit through growth or get paid through dividends. This makes fundamentals and accounting important because they will tell you that this company can increase in size, continue paying you a dividend, or have a growing dividend.

Trading

A trader is someone who will buy and sell stock due to price volatility. Price volatility is the short-term price changes. This means that a trader will look at the short term trends instead of how well the company is doing over the long run. A trader will focus less on fundamentals and accounting. Instead, their focus is on Technical Analysis and other short-term price drivers.

The timing of a trade will be much shorter than an investor’s time frame. There are a few basic types of traders. One is a scalper or Day Trader who has extremely short term trades. By definition, these are people who hold a trade for less than a day. Another example is a swing trader. These traders hold an investment more than one day but will sell the trade off the trend swing which is normally less than a week.

What does a Successful trade look like?

This is really simple. A successful trade is when someone’s trade hits their intended price target or they hit their profit goal. Since traders are in a trade for less time they are in the market and out of the market as quickly as possible. A trader wants their trade to hit its price target as quickly as possible.

Another important thing is that they will set price goals. A trader will go for a small gain at a time. An equities day trader might want 1 percent gain a day where a swing trader might set a goal of 5 percent a week.

Article Source: What Is The Difference: Investing VS Trading


List items on:

1 Gram Gold Maple Leaf Coin Maplegram In Assay - 99.99% Pure Bullion .9999 2022
1 Gram Gold Maple Leaf Coin Maplegram In Assay - 99.99% Pure Bullion .9999 2022
£ 85.00
#2023 1/10 Oz 999.9% Fine REAL GOLD Royal Mint Britannia Bullion Investment COIN
#2023 1/10 Oz 999.9% Fine REAL GOLD Royal Mint Britannia Bullion Investment COIN
£ 349.99
Britannia Gold Bullion Minted Bar 1g Gram Sealed Brand New Never Opened
Britannia Gold Bullion Minted Bar 1g Gram Sealed Brand New Never Opened
£ 94.99
NEW 50, 20,10,5 Full Set 24K Gold Foil Bullion Bar UK stock
NEW 50, 20,10,5 Full Set 24K Gold Foil Bullion Bar UK stock
£ 17.99
1 Gram Gold Maple Leaf Coin 2019 Maplegram In Assay  Pure Bullion .9999
1 Gram Gold Maple Leaf Coin 2019 Maplegram In Assay Pure Bullion .9999
£ 80.00
24k Gold Coin Limited Edition 70th Queen Elizabeth II 0.5 Gram Gold Bullion
24k Gold Coin Limited Edition 70th Queen Elizabeth II 0.5 Gram Gold Bullion
£ 47.50
Ganesh 20g Gold Bullion Minted Bar .999 Fine 24ct Gold Ganesh 20g Gold Coin Bar
Ganesh 20g Gold Bullion Minted Bar .999 Fine 24ct Gold Ganesh 20g Gold Coin Bar
£ 2,200.00
Lakshmi 1g Gold Bullion Minted Bar 999.9 Fine Gold Lakshmi 1 Gram 24ct Pure Bar
Lakshmi 1g Gold Bullion Minted Bar 999.9 Fine Gold Lakshmi 1 Gram 24ct Pure Bar
£ 139.95

List items on: