How stock trading is different from investing
Invest and trade. These are the two most commonly heard terms surrounding the stock market and are therefore often used interchangeably. But do these two terms mean the same thing? Certainly not.
Basically, these are two strategies used in the stock market. Simply put, you can associate a T20 cricket match with trading, while ODI and Test Match can represent an investment.
Curious to know how?
Let us dig deeper and understand these two approaches before we dive your feet into the stock market.
Also read: Find out if you should include debt funds in your equity-heavy mutual fund portfolio
What is stock market trading?
Simply put, stock trading is like a sophisticated art of finding short-term gains in the market. through the purchase and sale of stocks and shares. Traders tend to take short-term positions in stocks, which typically range from seconds to days or sometimes months.
What is stock market investing?
Unlike stock trading which is primarily aimed at quick, short-term gains, Investing in the stock market tends to have a longer horizon. For example, when you buy a stock for investment purposes and not for trading, you stay invested and hold the stock for the longer term so that its value increases and brings you the profits.
Even in the words of great investor Warren Buffett, “If you can’t find a way to make money while you sleep, you’ll work until you die”.
That’s why it’s important to invest your hard-earned money and let it enjoy the power of long-term compounding!
Types of investment
Also Read: How to Manage and Minimize Stock Market Risk
Mainly, there are two types of investment strategies.
1. Value investing
This approach aims to reduce risk by buying only the stocks of well-established companies. While value can be maintained through this approach, growth tends to be less.
2. Growth investment
This approach tends to focus on growing the value of investments instead of simply conserving or maintaining value. In this, although the risk is higher because investors buy stocks that have higher growth potential, the growth prospects also tend to be higher.
Types of trading
There are mainly 4 types of stock market trading.
1. Position negotiation
Traders adopting this strategy tend to buy and hold a stock for a few months. They look for the best selling opportunities in this period to profit from their buy.S0, they position their buy and sell so that they can expect the best selling opportunities in this time frame.
Traders adopting this strategy tend to buy a stock for a few days or weeks to take advantage of the anticipated upward price movement.
3. Trading day
As the name suggests, day traders buy stocks in the morning and sell them back before the market closes that day. The idea here is to capitalize on a one-day market rally caused by positive news or market sentiment.
4. The Scalp Merchants
Last but not least, scalp traders keep high margins in play to take advantage of the smallest possible price swings in the action. These traders usually buy a stock for a few seconds or minutes and take advantage of the slightest opportunity.
Which strategy to choose?
Since trading requires relatively high market skill, real-time analysis, and identifying price movement within a split second or mere minutes, to put the right foot forward to make gains, novices must avoid dipping their feet into trading. , especially without the expertise of a financial professional.
On the other hand, investing is a less risky strategy even for novices, especially for those who want a source of passive income without spending too much effort and time analyzing every second or minute. By investing, you are more likely to grow your capital as an investor, and if you also have knowledge and patience, you can profit well from investing, especially in the long run.
Although investing is also short to medium term, especially in mutual funds, you can maximize the power of compounding in the best way by investing for the long term, more so for financial purposes such as corpus of retirement, the body of higher education of the child, etc. .
Moreover, it is not that a choice always has to be made between these two strategies. You can also do both if you have adequate knowledge, a surplus of investment and a taste for risk.
Also read: Frequently Asked Questions (no) – How much tax do I have to pay on my investment in a mutual fund?
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