When it comes to wealth creation in equity market, investing and trading are the two genres of the field. However, investing and trading are very different approaches of wealth creation or generating profits in the financial market.
In investing, you gradually build wealth, by creating and maintaining a portfolio (stocks, bonds, mutual funds etc.), while in trading you frequently buy and sell stocks, commodities, currency pairs or other instruments, to outperform ‘buy-and-hold investing’. Advantages can be found in both ways of growing your money, as they both have unique role. But if its comes to Forex Market, than trading is the only way to earn profit in short period. As trading is the way to go due to the unique aspects of the market. For example, Assume that trading is a one day cricket match while investing is a test cricket. You can see skill ful players in the team who are expected to strike fours and sixes to score higher in a one day match. Similarly, traders are skilled, technical individuals who time the market and learn market trends to hit higher profits in the specific time. It is related to the psychology of the market. Investors on the other hand, analyse the stocks they want to invest in. Trading is a method of holding stocks for a short period of time. It could be for a week or more often a day! Trader holds stocks till the short term high performance, whereas, investing is an approach that works on buy and hold principle. Investors invest their money for some years, decades or for even longer period. Short term market fluctuations are insignificant in the long running investing approach.
Advantages of Investing :
- Take long time to earn more profit
- Uses power of compounding.
- Tax payed is less.
- Benefit can be dividend.
- Less day to day monitoring involved.
- Adopted my mutual funds.
Advantages of trading :
- Power of leverage to multiply wealth.
- Short term so usually one can avoid overnight holding risk.
- One can short sell first and make money by buying at bottom.
- Hedge funds adopt these frequently.
- Lesser capital required.
Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame and earn profit frequently.