What is the difference between trading and investing?
These two phrases are used interchangeably in the trading world however there is a very distinct difference.
The differences can be broken down by the behavior, time and the psychology attributed to a trader and an investor of stocks. Let’s look at each one of these:
Investments usually take a lengthy period, (even decades in some instances) before start bearing fruit. Markets inevitably fluctuate continuously however investors tend to take their time and ‘ride out’ the downward movements so that losses are eventually recovered.
Trades, on the other hand, take place within a specified timeframe and often entail a protective stop-loss order to close losing positions at a set price level. Traders usually make use of tools such as stochastic oscillators and moving averages to find trading setups which reap high profits.
When it comes to tactics, traders need to be more strategic in their behavior. They need to choose and plan their actions depending on a number of things, like account size, how much time can be dedicated to trading, their experience in trading, their personality and how much they are willing to risk.
Investors tend to look out for dividends, stock splits and interest when investing in a particular stock. However, given the goal is to profit from a retirement account over an extensive number of years, investors tend to look out for price/earnings ratios and management forecasts.
The essential difference between a trader and an investor lies in the personality traits Investors want to profit from their stocks but are quite risk averse. Their aim is to gain a substantial Return on Investment (ROI). This is done by reinvesting their dividends and hopefully, making money in the long-term.
Traders tend to be adrenaline-fueled who love the thrill the financial market offers. Intra-day short-term trading and intra-week swing trading are tactics which may result in losses however these individuals tend to not necessarily mind losing in return for the thrill of the trade.
I hope this short, concise article has proven to be helpful whether you are considering becoming either a trader or investor. Sage FX offers trading on a number of stocks. Find out more from this link.