I have received several emails asking me about the difference between the trading and investing in the stock market, so for everyone who asked, this post is dedicated to you!
The difference between trading and investing can be significantly related to time. However, to simplify everything for you, I’ve also laid out the top three differences of both terms. We learn more when we differentiate, after all.
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| Is the difference between investing and trading in the stock market clear to you? |
1. An investor is interested in the basics; a trader is focused on the specifics.
If you’re an investor in the stock market, chances are you’re pretty knowledgeable on the basic terms. You know the fundamental rule: “Buy low, sell high” and you stick with it because it works.
If you’re a trader, you’re more focused on the price patterns and projection trends. You’re also aware of the fundamental rule, but you’re more prone to consulting your charts and graphs instead. Basically, you stress about the littlest things such as a miniature decrease in price. You spend countless hours trying to research and compare all the companies you know. You watch the movement of the market every single hour.
2. An investor is for the long-term; a trader is for the short-term.
Usually, investors consider the stock market their retirement fund because they can see themselves investing in it for 10 to 20 years from now. An investor appreciates the fact that they are going to be in a slow but steady boat ride with regards to growth and interest.
A trader, on the other hand, jumps from one company to another in a span of a day. Sometimes, the span is shorter as a trader may jump from one ship to another within an hour or so. Traders are usually on the lookout for the incredibly risky and fast-paced growth that penny stocks can give them.
3. An investor trusts several good standing companies; a trader buys from few penny stocks only.
An investor is wise enough to do background research on the companies that he’s putting his money in. He believes in the vision and value of the companies that he’s currently investing in. He’s also level-headed enough to have a well-balanced portfolio of around 6-7 strong companies because he knows that diversification is the key.
A trader, however, may focus on one or two “penny” companies only. These “penny” companies or “centavo” companies are called such since these companies don’t have a solid background yet.
Therefore, the prices of their stocks are considerably lower – sometimes, the price is so low that it’s only amounting to several centavos only. This is a huge risk because the company you’re trading in doesn’t have any history of past performance yet, so you don’t have any relevant data to compare your notes with. Think of it as braving a tough storm while you’re blind-folded.
Usually, investors consider the stock market their retirement fund because they can see themselves investing in it for 10 to 20 years from now. An investor appreciates the fact that they are going to be in a slow but steady boat ride with regards to growth and interest.
A trader, on the other hand, jumps from one company to another in a span of a day. Sometimes, the span is shorter as a trader may jump from one ship to another within an hour or so. Traders are usually on the lookout for the incredibly risky and fast-paced growth that penny stocks can give them.
3. An investor trusts several good standing companies; a trader buys from few penny stocks only.
An investor is wise enough to do background research on the companies that he’s putting his money in. He believes in the vision and value of the companies that he’s currently investing in. He’s also level-headed enough to have a well-balanced portfolio of around 6-7 strong companies because he knows that diversification is the key.
A trader, however, may focus on one or two “penny” companies only. These “penny” companies or “centavo” companies are called such since these companies don’t have a solid background yet.
Therefore, the prices of their stocks are considerably lower – sometimes, the price is so low that it’s only amounting to several centavos only. This is a huge risk because the company you’re trading in doesn’t have any history of past performance yet, so you don’t have any relevant data to compare your notes with. Think of it as braving a tough storm while you’re blind-folded.
So there you have it! Obviously, judging from this post, you can safely assume that I lean more on the investing side rather than on the trading side, right?
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