Trading vs. Investing
trading vs investing in stock market
Trading and investing both are different methods of earning money from the stock market. For successful journey in stock market everyone most have clarity in their mind whether he want to be a trader or investor. lets understand difference in between both of them
Investing:
Under investing method a person takes position in a stock for a very long period of time like 3-5 years with an expectation of very big return from that stock. The main purpose of investing is gradually and slowly generate the wealth from the stock market. By this method people makes a portfolio of some stocks, there are some other instruments of investing like mutual funds, PMS, Bond etc.
Advantages:
An investor enjoy the benefit of a periodic dividend and bonus issued by the company.
Investor can get compounding effect by reinvesting their divided into new stocks.
share prices goes up and down daily, Investor have enough time to cover up their losses into profit.
Investor do not have to get worry about the daily movement of share prices, because his goal is for long term. Investor do not have to track the prices daily.
Trading:
Frequently buying and selling of stocks is called trading. under this method a trader tries to capture the daily price fluctuation of the stock. A trader hold their position for a very small period of time. The basic purpose of trading is to capture the price fluctuation. This is a high risk and high return method where trader seek 10 -15% return from every transaction or with in a period of one month, like on the other hand an investor just expect only 10- 15% average return only during a period of 3-5 years.
Trading require a lot of skill in predicting the direction of the stock price, for this prediction traders use technical analysis tools. There are so many other tools like future data analysis, option data analysis and prediction based on up coming news and events etc.
Advantages:
High rate of return.
Easy and quick exit from the stock there is something very wrong with the company.
High liquidity of the money. Trader can liquidate shares into money at any time.
Trader call sell the shares without buying the shares just to capture the price fluctuation by sell at high price and cover the position at low price.
On the basis of holding time period trading can also be categorized:
Scalping: In scalping trader takes a position in very heavy quantity and hold it only for just few seconds or mints. just to capture very small price movement.
Day trading: In day trading trader takes the one or multiple position only for one day. He never carry the position for the next day.
Swing trading: In swing trading trader takes position for 1 week, 15 days or for few month depends upon the how much big price swing he/she wants to capture.
Positional trading: Under positional trading trader hold the position for 1-3 years.
My personal view:
People who wants to join market as a part time business or as a secondary source of income, they must choose the investment method. Because it don’t require daily price movement tracking and also not require any kind of technical and psychological skill to earn money from the market. People who they don’t want to take much risk on their capital, they must also follow only investing method. Their are many instruments of investment like Mutual funds, Index funds, PMS, mini PMS, ULIP plans, Bonds. Private equity or you can create your own portfolio of some stocks as well.
But people who they have ample amount of time and wants to join it as a full time profession they must follow the trading method. But for being successful in it trading require a lot of practice, time, money (for backup), technical skill, strategy, money management skill, and most important a right psychology which I will discuss in upcoming Articles. Always remember trading is a high risk and high return method with success ratio of 2%. So you have to be very competent to get success in trading. According to my advice you must first learn different skill of trading before starting it. Like other professions doctor, engineer, teacher you must first learn the trading skills first, because it’s highly risky method.
