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Trading vs. Investing: What’s the Difference?

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difference between investing and trading | Trading vs. Investing: What’s the Difference?

When asked between investing and trading, the majority of market participants think they are the same.

In fact, when viewed based on the objectives and duration, trading and investing are clearly different.

In order not to get confused more, consider the difference between investing and trading in the following review.

Related : What is Forex Trading and How Does It Works?

Basic Concepts of Differences in Investment and Trading

Once upon a time, someone who struggled in the forex or stock market thought he was investing. While on another occasion, he also admitted that he was trading.

The terms trading and investing are considered the same because they are related to buying and selling transactions, or investing a number of funds.

But in fact, investing and trading are very different when viewed based on objectives, time frame, and several other distinguishing factors.

Related : How Forex Works – Start to Earn Guide

1. Difference of Purpose

The first differentiating factor between trading and investing is the goal. Market players who choose to invest aim to create wealth in the long term by buying certain assets, then holding them for a long period. So, price fluctuations that occur every day have no significant impact on investors.

Conversely, trading aims to make profits by frequently buying and selling assets in shorter time frames, from minutes, hours, daily, weekly, to monthly. Also, daily price fluctuations are a momentum that traders can use to reap profits.

2. Term

The second difference between trading and investing lies in the time frame. As mentioned above, investing tends to be long-term, while trading is a short-term activity.

Someone who makes an investment can hold their assets for years or even decades. As a result, the phenomenon of “share inheritance” or “property inheritance” is unusual, considering that this “inheritance” could be the result of investment from previous actors.

On the other hand, the trading period only ranges in minutes, hours, daily, weekly, or at most months (Monthly) . This time difference has created different types of traders, starting from Scalper (trading under H4 / Daily), Day Trader (H4 or Daily), Position Trader, and Swing Trader (Weekly or Monthly).

3. The Level of Activity in The Market

The majority of market players who decide to invest tend to choose investments that are healthy, relaxed, and stress-free. After studying the company in-depth, they then take a certain position, then relax.

On the other hand, trading requires active involvement in the market to find the right entry momentum to book profits. Traders also love market games and consider them both entertainment and “sport of the heart”.

4. Analysis Approach Used

In investment, the analytical approach carried out is related to the basics of business such as industry, economy, finance, markets, and competitors.

The analytical approach used in investing is related to the fundamentals of the assets involved.

Meanwhile, in trading, the analytical approach used tends to focus on market sentiment based on the attitudes of market participants in it .

5. Benefits Obtained

Apart from the several distinguishing aspects above, trading and investing are categorized differently in terms of additional benefits. An investor will get bonus facilities, dividends, stock split, and so on, while a trader does not.

From these two things, it can be seen the protective element. If an investor buys shares in a company with strong fundamentals, it will bounce back to its true value and the losses will be recovered within a certain period. Meanwhile, traders will use Stop Loss, Target Profit, and Risk / Reward Ratio to limit losses and optimize profits.

Better To Be An Investor Or Trader?

An investor is someone who allocates funds in long-term investment instruments. For example, real estate (property business), large or small scale industry, to the commodity market or the stock market for a very long period of up to decades.

An investor will focus on the product to be purchased and the type of business. Thus, investors will actually choose companies with very good performance.

Related : Success in Forex Trading, Here are 5 Tips for Beginner Traders

Based on the perpetrators, investors can be classified into institutional investors and individual investors or retail investors. In contrast to institutional investors, individual investors usually do not have a clear plan if the investment returns to lose.

They tend to cut losses and switch to other investment instruments or are allowed to rebound and generate profits in the future.

However, not all individual investors are like this. Those who really understand investment plans and strategies will always reap great success like Warren Buffet.

Unlike investors who focus on the fundamentals of the product to be purchased, a trader will focus on the latest sentiment and market conditions.

Related : 8 Reasons Why Professional Traders Can Make Consistent Profits

Traders usually don’t really care about the performance of the company’s shares to be purchased. This is not a big problem, as long as market sentiment towards the targeted company is positive. Because this condition will make it easier for traders to sell it back quickly.

Rather than investors, trades carried out by traders are short-term with great frequency. A trader also has a well-directed method, strategy, and plan because he cannot hold a position for too long.

If you have mastered the knowledge of trading, traders can enter all types of markets and reap more profits just like George Soros.

So from the review of the differences between investing and trading above, which profession are you currently working on? Investor or Trader?

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