Difference Between Stock Investing and Trading
If you’re a cricket fan, you must be aware that the game is played in several formats. Arguably, the two most popular formats are – Test cricket and the T-20 format. The approach and styles in which these two formats are played are significantly different. However, the purpose of the participating teams remains the same irrespective of the format, i.e., to win the match.
You must be thinking why are we discussing the differences between a test match and a T-20 game here? It’s because these two formats of a cricket game resemble the two concepts—stock market trading and stock market investing.
While stock market trading is similar to playing a T-20 format where everything is done in a super-fast manner, investing in the stock market is like playing a test match where the batsman needs to bat patiently to score his runs. However, the purpose remains the same in both cases, i.e., to you’re your wealth.
Stock Market Trading Vs Investing
By now, you must have gathered the basic difference between stock market trading and stock market investing. If not, then let’s talk about it in a detailed manner. Let’s compare trading vs investing to understand the differences between the two terms.
What is stock trading?
Stock trading refers to the process of buying and selling stocks within a short period to make profits. A trade gets completed when a trader buys a certain quantity of stocks at a certain price and then sells those stocks at a price that can be greater or lesser than the buying price.
To complete a trade in a stock market, a trader needs to take a short-term position in stocks that can range between a few seconds to a few months.
Below are the different types of trading a stock trader can practice:
- Position Trading – When a trader buys a stock and holds it for a few months, it is known as position trading. The trader looks for the best opportunity to sell its stocks during this span.
- Swing Trading – When a trader buys a stock and holds it for one or two weeks in anticipation of an upward market movement, it is known as swing trading.
- Day Trading – Day trading or intra-day trading is the same thing. It occurs when a trader buys and sells the stocks within the trading hours of the same trading day.
- Scalp Trading – Scalp trading means buying and selling stocks within very short spans, say a few seconds or a few minutes. Scalp traders trade in high margins to make profits from the slightest market movements.
What is stock investing?
Stock investing works oppositely to stock trading. It means buying a certain quantity of stocks at a certain price and then holding them for a long time to generate profits or returns. Investing in stocks is similar to investing in other instruments, such as mutual funds, gold, silver, etc.
Stock investing is a relatively easier and risk-free method of generating returns from the stock market. If you don’t have much knowledge about the market, you can invest your money in some good stocks and then forget it for several years. This strategy can help you generate very high returns in the long term.
The two common techniques used by stock investors are:
- Value Investing – This is a risk-averse approach to stock investing where an investor focuses more on maintaining the value of his or her investments rather than getting very high returns. Value investing involves investing in the shares of well-established companies that have already proven their worth.
- Growth Investing – This is an aggressive approach to stock investing where an investor aims to get very high returns on his or her investments. Therefore, he or she invests in the shares of small companies with huge growth potential.
Investing and trading are two different techniques to generate profits from the stock markets. If you want to take a conservative, risk-averse approach, you can try stock investing. However, if you have the required knowledge and skills and are ready to take some risks, you can try your hands at stock trading.
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