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Posted on  November 4, 2022 under : by Team Lakshmishree

What Is The Difference Between Investment And Trading?

As Warren Buffet said – “Do not save what is left after spending but spend what is left after saving.” But saving is not enough you need to let your money make more money, a way to do it is either trading or investing.

Sometimes Investing and Trading are used simultaneously which is the wrong way to use them. There is a big difference between investment and trading. Both are ways to earn a profit but in cricket terms, we can say that Investment is like a test cricket i.e., longer while trading is like a T20 i.e., small.

What is Investing

Investing is a traditional way of making more money, where stocks or other investment instruments like bonds, mutual funds, basket stocks, etc. are bought to be kept for a long time, which gives returns in the future. These are held for years and decades and build their wealth gradually over time.

Investors do not worry about small downturns in the stock market as they are for a short period and their stock is for a longer time. They concern themselves with the market or company’s fundamentals and not everyday trends.

What is Trading

Trading is buying shares and securities for a short period. It is a highly volatile process and the chances of losing money are high as the trade is for a short time.

A trader can earn profits while trading by buying at a low price and then selling at a high price or by short selling (the reverse to make profits in a bearish market).

It is all about buying and selling shares and securities after a short period which easily beats the buying and holding principle of Investing.

Difference between investment and trading

There are many differences between Investment and Trading. Some of them are:

  • The investor does just the fundamental analysis while the trader needs to do a more detailed and technical analysis before buying a stock.
  • Investing gives regular income while trading has short-term profits with no regularity.
  • Investments are safer than Trades even if they provide fewer returns.
  • The investors are not needed to be active all the time as compared to the traders.
  • The investors choose the stocks of reliable companies while the traders select the stocks that have high liquidity.
  • The number of transactions in trading is high while during investing it is low.
  • The investors stay put when the market is falling while the traders set up a stop-loss to avoid heavy losses.
  • Investments have limited profits while Trading deals in high risk which may result in either high profit or high loss.

Is Trading easier than investing

Trading is successful for only those who have intimate knowledge of the stock market and can predict the trend of a share rather than a person with no knowledge about it.

While investing is easier for a person as it is held for a long time and if the investor is afraid that he would lose money in the case of a market downfall he should invest in Blue-Chip Stocks, which are more reliable than the rest.

Whose earning is more a trader or an investor?

Both the traders and investors make profits but the traders earn more frequently as compared to the investors if they make the right decisions. It may be said that what the investor earns in a year a trader may earn in a month or two.

Conclusion

Trading and investing are just some ways through which you can make some extra money. Both of them have their pros and cons and an individual can do both simultaneously or they can do either.

Investment is all about planning and researching the stock which is best suited for the long term.

E.g.- if you had bought a share of Reliance industries in 2010 the price was around ₹500 and at present in 2022, the price is close to ₹2,500.

In 12 years, the price jumped by approx. ₹2000 and is still growing steadily.  On the other hand, Trading involves buying stocks and then selling them at a higher price.

To sum up, there are significant differences between Investment and trading the major being that trading requires more time to research than investing and the traders need to be more active as the share price can drop at any time which may result in heavy losses for them.

It depends on the risk-taking ability of a person to decide whether he wants to trade or invest.

FAQs

In between investing and trading which is riskier?

Trading is riskier than investing as the former is more dependent on daily prices and must be kept closely monitored.

Is Profit guaranteed in the long term?

In the long term, there are some chances that the stock may suffer a downturn which may result in a loss for you. After investing it is suggested that the investor should keep track of the price of the stock to avoid heavy losses.

What is the minimum amount of money required to start investing?

There is no minimum amount of money specified anywhere that is needed to start an investment. You can invest whatever is the best amount for you.

Who should look into trading?

A person who has proper knowledge of how the stock market works and can do an in-depth analysis of the market should try their luck in Trading.

Who should invest?

A person who doesn’t have the time to analyze the stock market should look into investing as it is easier than trading.

Written by Team Lakshmishree

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