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.
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.
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.
There are many differences between Investment and Trading. Some of them are:
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.
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.
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.
Trading is riskier than investing as the former is more dependent on daily prices and must be kept closely monitored.
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.
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.
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.
A person who doesn’t have the time to analyze the stock market should look into investing as it is easier than trading.
