What is Investing
Investing is traditionally related to buying stocks or other financial instruments that are expected to fetch returns over a long period of time. They are often held onto like family silver for several years. For this reason, it is important that investors select stocks or bonds of companies which are expected to grow in the long term. Thus, investing involves intense fundamental research about the potential investment target, be it a stock or a long-term bond. The aim of an investor is to create a balanced portfolio of different stocks and bonds that give returns through increase in value as well as dividends or interest income. This enables him or her to attain financial security.
As a result, investors do not sell their holdings regularly. It is only in case of an emergency or when the stock has met its long-term targets.
What is Trading
Trading is characteristically associated with buying and selling stocks, commodities, currencies, bonds or other financial instruments over shorter periods. This is primarily to make profits from the short-term movements in prices of these securities. So, traders essentially take advantage of volatility. Assessing good trading opportunities typically makes use of trading systems or chart-based techniques to detect short-term patterns in prices. This is called technical analysis. It involves more frequent buying and selling of stocks or other financial instruments.
Difference Based on Attitudes
The final difference lies between the personality or wealth creation attitude of an investor and a trader. Let’s see the main differences below:-
Trader (Buy and Sell)
|
Investor ( Buy and Hold)
|
| A trader is of an impatient personality ( Hare) |
An investor is slow and steady in approach ( tortoise) |
| Trader takes decisions within minutes, days, weeks, months |
Decisions are based on long term consequences hence range from years to decades. |
| Times the market ; missing the right time to enter or exit may lead to loss |
Do not time the market or get bothered by short term market volatility. |
| Stocks selection strategy based on technical analysis; momentum trading |
Stock selection strategy based on fundamental analysis of a business ; value investing |
| Requires real-time data and information to take buy and sell calls hence is on his toes all the time |
Is of a more relaxed disposition, information only regarding fundamentals needed. |
| Does not pay attention to what the company does and only focusses on the scrip price and trade volume. |
Bases all decisions on the conviction he has on the company’s growth prospects |
| Has more risk appetite with a penchant for short term gains |
Possesses lesser risk appetite comparatively, invests for the long haul |
| Is more likely to buy stocks based on recommendations by friends , other stock market traders, media and other external resources |
Invests only when his investment objective aligns with a business. Does his own research, and invests only after he completely convinces himself of the potential of a business. |
Trading and investing both involve seeking profit in the stock market, but they pursue that goal in different ways.
Traders jump in and out of stocks within weeks, days, even minutes, with the aim of short-term profits. They often focus on a stock’s technical factors rather than a company’s long-term prospects. What matters to traders is which direction the stock will move next and how the trader can profit from that move.
Investors have a longer-term outlook. They think in terms of years and often hold stocks through the market’s ups and downs.