Trading vs Investing – What is the Difference

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Stock trading is about buying stocks for short term profit and stock investing is buying stocks for long term profit. This is the key differences between trading vs investing

Both strategies using to make profit from the stock market but in different way. Stock trading happens regularly i.e. daily, weekly etc. But, stock investing is a time taking process due to the long term investment focus.

In stock trading, investors solely depends on technical analysis, candle sticks etc, but in stock investing fundamental analysis will be used to study the future growth and value gain possibility of a company.

Trading vs Investing – Key Differences

1. Character

  • Trading meant to buy and sell stock as per the price movement
  • Investing meant to buy stock for long term gain

2. Investment duration

  • Trading meant to short term and sell the stock once found the price increased or even decreased
  • Investing duration will be high as per the goals it can be differed from 3 years to 20 or more years

3. Capital gain

  • Trading gives the short term capital gain depends on the prices are going up
  • Investing meant for the capital gain for long term with appreciation of the stock prices as well as in the form of bonus shares and dividends

4. Investment intention

  • Trading meant to make profit in a short time and exit position
  • Investing meant for long term capital appreciation by understand the value of a company through fundamental analysis.

5. Risk

  • Trading have comparatively high risk due market fluctuation and focusing comparatively short time.
  • Investing have low risk due to the longer investment period

6. Type of instruments

  • Trading meant only for stocks due to the possibility of quick entry and exit
  • Investment portfolio creating by adding both stocks, mutual funds, bonds etc..

7. Profit possibility

  • Trading involves high risk thus the possibility for high return possible
  • Return is limited but possibility for high returns by getting bonuses and dividends.

8. Tax involved

  • Trading is short time thus the tax burden is huge compare with investing
  • Investing is long term so it involved with less task compare with trading activities

9. Costs involved

  • Trading is a short time and regular activity so the brokerage, commission and tax is high
  • Investing meant for long term so the one time buying cost and brokerage involved

10. Protection from lose

  • Trading provides an opportunity to add stop loss at the time of each buying
  • Investment required regular monitoring on the the companies, industry to identify possible risks and need to pull out money before huge lose happening.

11. Tools used

  • Traders using tools such as technical analysis, candle stick and moving average chart of the stocks.
  • Investors utilizing the fundamental and value analysis to find and invest on a stock or other products based on various profit and earning rations such as EPS, P/E etc..