Crystal Ball Markets
Tesla stock on an iPhone
In the pastfew years, numerous online investment and trading platforms have popped up, resultingin more people becoming privy to investing and trading of various assetclasses. The internet has significantly facilitated the growth of onlinetrading, and smartphones have helped to expand it even further. Today, you’lllikely see numerous trading applications exist on Google Play Store and Apple App Store.
As morepeople get into trading various asset classes online, there’s a growing need tohelp distinguish between investing and trading. You’ll often hear people usethese terms interchangeably, thinking they mean the same thing. However,numerous differences exist between trading and investing. Whether you’retrading or investing in stocks, cryptocurrencies, forex, commodities, oranything else, you have to understand that investing and trading are two verydifferent approaches to financial instruments.
Beforeproceeding further, we must point where the similarities between the two ends.Investors and traders have a similar goal: to profit from financialinstruments. Ultimately, they want to see sizable returns on their capital,rightly so because no one trades or invests asset classes intending to losemoney. However, the distinction is in how they approach their goal.
What is Investing?
Typically,investing refers to long-term strategies for financial instruments. Unliketraders, investors aren’t looking to hold positions for a short while. Instead,they’re looking to build a portfolio over time that can provide sizable returnsand help them grow their wealth. As a result, most investment strategiesusually span an incredibly long time, ranging from years to decades.
Mostinvestors aim to increase their wealth by seeing their financial instrument’svalue increase. Stock investors will often opt for dividend-paying stocks andstock splits because they guarantee a healthy passive income stream. Investorsare also less likely to cash out during market downturns or when speculation isrife because they’ve invested for the long term. They usually believe theprices will return to normalcy over time and, as a result, determine theirassets aren’t worth selling out of panick.
Mostinvestors focus on assessing market fundamentals when investing in an assetclass. Hence, they’re more focused on metrics that show annual growth insteadof assessing their asset’s daily performance.
Two investors researching assets
What is Trading?
Tradingsignificantly differs from investing. That’s because it focuses more onshort-term gains instead of long-term gains. Whether you’re a stock, crypto,forex, or commodities trader, you’ll likely be making numerous daily or weeklytransactions. As a result, your approach differs significantly from investorswho only invest in assets when they see a potential long-term growth opportunity.Traders hope to outpace investors’ returns by making more transactions andcapitalizing on market fluctuations.
Numerousfactors – both internal and external – can impact financial markets, resultingin asset prices falling or rising. Since most financial markets can bevolatile, traders aim to take advantage of the volatility for theirbenefit.
Toillustrate, let’s assume you’re a stock trader. You receive news that Applewill be releasing its annual financial report soon. You’re aware that Apple hassold more units this year than ever before, and as a result, you expect thecompany’s stock to appreciate. You purchase some Apple stock for $170immediately. Once Apple officially releases its annual financial statement, themarket reacts by purchasing more stock because they’re impressed with Apple’srevenue and profitability. As a result, Apple’s stock price increased to $180.Since you already purchased the stock before the financial statement’s release,you managed to make a $10 profit per owned share. As a trader, you can now sellyour Apple stock to other traders or investors, generating a sizable investmentreturn.
Generally,traders hold positions for a few hours, days, and in some rare instances,months. Your trade holding duration will depend on your trading philosophy.Typically, four types of traders exist scalpers, day traders, swing traders,and position traders.
Scalpers arenotorious for making dozens, if not hundreds, of daily trades. They usuallydon’t hold a position longer than a few seconds or minutes. Their profit pertrade is minuscule, but they make up for it through trade quantity. Scalpersdon’t hold positions overnight because they want to avoid overnight riskexposure and fees.
Day tradersoperate similarly to scalpers, except they’re likelier to hold their positionsfrom the start of the trading day until the market closes. Like scalpers, daytraders also refrain from holding positions overnight to avoid risk andassociated fees.
Swingtraders generally hold positions for longer than day traders and scalpers. It’snot uncommon for swing traders to hold their position for a few weeks. They tryto benefit from the market’s momentum-swinging. Position traders generally liketo hold positions for even longer, ranging from months to years.
Investment written in block tiles
Differentiating Between Investing and Trading
Here aresome crucial distinctions between investing and trading that you’ll want toremember. They include:
Asset Analysis
Traders and investorsneed to research before placing their capital in an asset. Otherwise, they risklosing their money by making ill-advised decisions. However, the differencebetween traders and investors is how they analyze assets. Traders generallylook at metrics that help them understand an asset’s daily performance,enabling them to predict short-term future trends. Hence, you’ll see tradersusing technical analysis tools to assess an asset before trading it.
On the flipside, investors focus on an assets’ long-term growth and potential. Therefore,using technical analysis isn’t enough, and as a result, they’ll rely onfundamental analysis to assess long-term viability metrics.
Risk and Reward
Traders andinvestors also have different approaches to risk and reward. Investors aregenerally risk-averse and prefer investing in assets that will yield profits inthe long run. They’re satisfied with making decent but not overwhelmingprofits, so long as they’re safe from eccentric market volatility in the longrun..
On the flipside, traders like to capitalize on market fluctuations, and as a result,they’re dealing with higher risk regularly. However, by doing so, they’re alsolikelier to incur greater profits because if they anticipate market trendscorrectly, they can make sizable profits. However, one wrong decision can alsocause them to incur significant losses.
A trader performing market assessment
Start Trading or Investing with Crystal Ball Markets
Whether youprefer trading or investing, you’ll need a top-tier online investing andtrading platform. Crystal Ball Markets is one of the best online trading andinvestment platforms you’ll find. Our state-of-the-art, cutting-edge MobiusTrader 7 trading platform enables you to trade and invest in multiple assetclasses using a single platform. As a result, not only are we one of the beststockbrokers, but we’re also a leadingcryptocurrency trading platform and foreign exchange trading platform.
Visit our website today for more information.Alternatively, consider registering an account with us to get started.
