Trading is buying and selling of financial instrument for a short period of time with aim and ability of making money regardless of other prices of stocks. It is actually a short time strategy. Profit is simply generated by buying at a low price and selling at a high price. Examples of traders are day traders, scalpers, momentum traders, momentum traders, swing traders etc. Traders utilize advantage both rising and falling markets to sell their stock, taking more frequent profits.
Investing is a gradual building of wealth through buying and holding of stocks, bonds and other financial instruments mostly for a long period exploit long term growth rate.
Examples of portfolio in investments
- High Dividend Portfolios-stock above average dividend yield
- Blue Chip investment portfolios-tracker portfolio comprising of largest top rated stocks
Index Tracker portfolios-used to follow movement of indices
Similarity of trading and investment
Both seek profits through participation in the marking at different dealings such as stocks, dividend, bonds etc.
Both have risk in business sectors
Differences
- The difference of trading and investing has been summarized in terms of
- Period-trade involves holding stock for a short period of time while investing includes buying and holding of stock for a long time.
- Capital growth-traders keep checking the price of stock and sell in case it shoots up while investing includes com[pounding interest and holding them over along time.
- Risk-both have risks but trading has more risks than investment.
- Action of the Doer-trader puts money for a short time and keeps selling to make profits within a short time while investor keeps money for a long time and keeps checking.
- Investor will look into fundamental companies which will yield while a trader will check the fluctuations of prices in the market and buy nad sell make the profit.
- Trader may focus on volatile stock exchange while investor on quality stock price action.