I posted a blog on Trading and Investing recently. But I ran into some interesting material that has necessitated another blog. So, here we go:
The main difference between Trading and Investing is that trading is a short-term proposition and Investment is a long-term commitment. In other words, trading is like flirting while investing is almost like marriage!
In trading, we arrive at our decisions based on technical analysis. Most of the time, this relates to trend analysis and how the stock fared in the past. Investments, on the other hand, are always made on the basis of fundamental analysis. For long-term investments, we always look for solid fundamentals. This is based on forecast for the future.
Trading is a one-time deal. It begins and ends with a single deal. When we invest in stocks, it may bring perquisites such as bonus issues, dividends, etc. Earnings on investments accrue during the term for which we hold the investment.
Trading attracts high brokerage because of the nature of the transaction. Investments involve low brokerage because of the long-term holding. Sometimes, brokerage may even be waived off in case of investments.
Trading brings in high returns when the stock market is in high spirits. If we are fortunate enough, we may end up experiencing an 8-10% growth per month as the risk involved is greater in case of trading. By comparison,
investment brings in lower returns. It could be something between 15-20% per annum when compounded. So, the growth prospects of trading are several times more if we invest in the right kind of stocks and if the luck is on our side. However, the element of high risks is always there in case of trading.
Success in trading depends entirely on finding the right moment to enter and exit a stock. The stakes are high and mistakes made in buying or trading decisions may cost a fortune. Investments, on the other hand, create wealth through compound interest and dividends. The risk involved in long-term investments are lower as compared to risks involved in trading.
If you are game for risks, you may speculate on trading. But, if you are someone, who would prefer a little more security for your money, investment may be the right choice for you.
