Investing vs Trading what’s better
Investing and trading are two different methods of trying to build wealth in the financial markets. In this article, we will take a look at investing vs trading and interpret the variations of both.
Investing & trading explained:
Investors and traders approach the financial market for the same goals: to make a profit. But they differ in how they try to reach that goal.
Investing is a long-term approach to trying to make money in the financial markets, whereas trading includes short-term transactions.
Investing: The art of long term growth
The aim of investing is to build up profit over the long term, commonly by buying and holding financial tools “stocks, bonds or mutual funds.”
Investors are not interested in short-term price moves in the financial markets..but instead, take a more holistic approach to the financial markets. They are interested in the general growth of their investment.
Trading: The skill of short term profits
On the other hand, trading is all about exploiting short-term price moves in the financial markets. Traders think of increasing and decreasing prices with the goal of smaller, and more regular, profits.
Because of the short-term nature of trading, it is a much more hands-on experience than that of ‘buy and hold investing. Traders spend a lot of time observing price charts and thinking about their next move..whilst entering and exiting the market on a far more frequent basis.
They analyze the financial markets, choosing the perfect time to enter the market and to exit it to ensure a maximum profit or to limit their loss. Successful traders tend to cut their losses short quickly.
Fundamental vs technical analysis
When it comes to investing, market participants are interested in fundamental analysis. Fundamental analysis will look in detail at macroeconomic elements as well as the performance and outcomes of the company, fund, or market in question.
This analysis is important in being able to choose a fit investment that will give the long-term growth an investor is searching for.
Traders employ elements of fundamental analysis within their decision-making process, their focus tends to be on technical analysis.
Technical analysis is the practice of using historical price data to expect future moves in price. Traders manage this analysis on an asset’s price chart with the help of technical indicators. Read more
Is one riskier than the other?
In the financial markets, the shorter the period, the greater the risk.
This is because traders, particularly ones with the shortest time, enter and exit the market far more frequently than investors.
The majority of traders tend to trade on leverage, so they are accessing larger market positions with a lower deposit. These larger positions allow them to increase their profits when the market moves in their favor, however, when the market moves against them their losses are increased to the same extent.
Both investing and trading runs the risk of loss of capital and both should be approached with warning by people who are new to the financial markets and those who are experienced alike.
Before starting an investing or trading journey, it is important to familiarise yourself with the intricacies of the financial markets and to practice on a demo trading account before risking your own capital.
About Marketsbloom:
Markets Bloom is a trading academy consisting of former trading industry professionals. We aim to help all types of traders looking to trade in the financial markets.
By registering with us, you will gain amazing insights into common issues traders face as well as how to instantly improve your trading approach. Our team of experts will be with you every step of the way on your journey to becoming a better trader.
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