There are two methods to earn profit in the market, investing and trading. However, some people consider investment and trading are the same things. The beginners will probably not understand that both are different.
In general, investing aims to create wealth in a long-term period by purchasing good performance stock and holding it for a long time. While trading aims to generate profit by buying and selling the stock in a short time. Hence, even though trading and investing have a big difference, both might profit investors and traders.
In this article, we attempt to provide information relating to the differences between investing and trading.
Investor VS Trader
In the capital market, investing and trading have different advantages. Here is the list of differences Musaffa provide to you.
- The purpose
Investing in the stock market is an activity where the investor purchases the stock for a long period. In contrast with investing, trading is an activity where the trader buys the stock for a short period.
- The strategy
The investor will buy the stocks that have good performance and hold it for an extended time. In comparison, the trader will purchase the stocks that the price has the probability to raise in a short time and sell it to generate profit.
- The benefit
The investor might earn cash from the dividend as well as capital appreciation in the long term. The dividend is the firm’s profit where the firm distributes to the shareholders according to their ownership. On the other hand, the trader mainly earn cash from capital gain. Capital gain is the profit where the buyer sells the stock higher than its previous price.
- The analysis
The investor uses fundamental analysis to know the companies that have good performance. At the same time, the trader uses technical analysis to see the movement of the stock price.
Which one is better? Investing or trading?
Based on the information highlighted above, both investing and trading have different advantages. However, someone should know his risk profile. The investor and trader have their strategy. If someone does not have a clear strategy, he will be at higher risk when involved in the stock market.
If you are not in a rush to collect the profit, investing is suitable for you. The investor does not care about the daily fluctuation of stock prices. That is to say that the stock he owns are likely give him a return in the future according to his financial plan. However, trading is suitable for you if you are trying to earn from the stock market daily. The trader trades every day to generate a return according to his financial plan.
So, are you an investor or trader?
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