Most of us rush to the stock market impulsively to make a fast buck without understanding the basics of stock market. For instance, do we know what investment is all about? And, do we know how trading is different from investing?
This is what we are going to learn today—I mean, the difference between investing and trading in stocks. I am going to juxtapose the views of the renowned investor Warren Buffet with the words of the popular investor Jesse Livermore to try and bring out the differences as clearly as possible.
When you invest your money on some stock, you make a long-term commitment. When you invest in stocks you hold on to them for some time after purchasing them. By contrast, trading is a short-term affair. You may dump the stock the same day as you purchase it.
Investment is always made with a growth mindset which is spread over a long period of time. It calls for patience for the returns to accrue on the stocks. Trading is always based ona profit mindset with the idea of making a fast buck within a short period of time.
Investment decisions are based on calculated risks. They are based on the readings of how a particular stock will behave over a period of time. Trading is wrought with inherent risks as buying and selling happen in quick succession.
Investment always gains from stability and the stocks pay off after considerable waiting periods. Trading depends heavily on volatility of the stock market to make the kill. You have to strike when the iron is still hot.
Investment depends on fundamental analysis of stock market. Trading is usually influenced by technical analysis of changing situations on a day-to-day basis.
Investment calls for buying and holding stocks for some time. Trading involves brisk buying and selling operations based on market waves.
Investment is ideal for long-term growth of capital. On the other hand, people engage in trading to build up their capital.
This should give you a fair idea about the difference between investing in stocks and trading in the stock market.
