Investing and trading are linked, but they are very much different approaches to the market. Investment is the careful study of companies that will continue to produce value for years, perhaps decades. Putting money into young companies poised for long, steady growth is a sound investment strategy. Even better is buying funds, so you have your money spread out over multiple companies in many sectors.
Learning to trade is more hectic, more frenetic. The outlook is short term. The need to manage risk is paramount, because you are going to making multiple trades at once, looking for stocks that are going to leap up in price, before falling back down. The key, you most likely, know is to buy at the low, before the leap and sell before the fall. Maximizing short term profits is a key goal of trading, while investing is geared towards the long term.
When you invest, you are looking to build a portfolio of stocks and bonds that will return wealth over a number of decades. It is a rather conservative approach to the market, one which serves many people well as they earn income from their regular jobs and then leave their savings with others for care and growth. It is a proven method that works for the majority of the population.
Trading is more exciting. There is no denying that. The rush that you can get from being right on a trade and seeing a real spike in the stock price as you buy it and then locking in that profit, right before the market corrects itself, can be exhilarating. But it is important to approach trading with hyper rational strategies that will protect you from being governed by that rush. Being able to step back and assess objectively is a hard-won skill among traders. Not everyone can do it. Which is why trading is much harder than it seems.
Investing, by comparison, is probably more simple and straightforward for financial novices, than it may seem. It really is all about finding the right fund and letting your savings and compound interest do the work. The right mutual funds tend to outperform the market over a long enough time period.
When you want to be financially independent, there are a number of ways to achieve that state. You could work your tail off for decades and save 10% of your income diligently, putting away your extra dough into safe, stable vehicles that will return 7-8% per year. That is investing.
Or you could learn how to make the stock market work for you, immersing yourself in charts and technical analysis, so you can see what returns you can make each day with multiple small entries into the market. That is trading.
Those paragraphs above are obviously an oversimplification of the difference between investing and trading. But there is a significant amount of truth in that comparison. Looking at the similarities, you are going to work your tail off either way. However you generate the money that you are going to trade or invest, you are going to work hard for it. And you are going to work to understand the market and how you can profit from it, whether you are trading or investing.
The major difference is the speed and daily time investment. Trading usually requires a lot of your attention from day to day, so you can take stock of small changes in the market that, properly exploited, could provide a real profit. With investing, the work is done before you put up the money. You want to do your due diligence on whatever company you are going to invest in, so you can sit back and let your research pay off. There is not much value in constantly staring at your Google stock or Facebook stock every day, since you bought one hundred shares back when those companies went public.
For more information on the differences between investing and trading, look to this resource for picking the right platform that will match your risk appetite and strategy.
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