Things you should know about before starting on your investing or trading journey.
Knowing the key differences between the two approaches will help put you in a position to successfully meet your personal goals. Before you begin to understand the key differences between investing and trading, you need to fully understand what they are and what it means.
What is Investing?
Investing can be described simply as buying an asset whether that’s a tangible piece of stock, mutual fund, or exchange-traded fund (ETF) which is something you do not own but are still eligible for dividend payments. As most people invest for the long-term through things like buying a house or saving for retirement, to name a few, they usually keep possession of these for years, sometimes decades.
What is Trading?
Trading is buying and selling financial assets, such as individual stocks, ETFs, bonds, commodities, and many more for a short-term gain. This can be done daily, There is no rule to trading but that’s usually the way it goes. Most people associate “trading” with regulated brokers on the items listed above but it’s technically every time you buy or sell something.
Here are the Key Differences between Investing and Trading
Risk of Loss
Any kind of investment or trading carries the risk of loss. The difference is not only the amount you’re risking to lose but how many times you are willing to risk it all.
Investments should usually come with a lot of research and a serious decision-making process, as they can be more expensive than what you buy with trading. However, the risk factors appear to be alot lower for those reasons. When someone is investing, it is never a quick short-term gain and playing the long game. Investing also gives you access to investment fraud attorneys who can help you recover lost funds.
Traders have risk increases for several reasons, as they hold onto their assets for a short period, but they usually hold a range of assets from different companies, including futures and swaps. This does help smooth out any dips by acting as a supplement in case one performs better than another. Trading can be more complicated than investing but can bring a better profit than investing after using the correct techniques.
Through every penny made, the tax man wants his share and this is not avoidable, even through trading and investing. Although investing can have less tax implications as any profit made through trading is taxed based on the amount of time you hold them meaning the longer you own them the less tax you have to pay.
This one might seem obvious, but the holding period for investments can be up to one year to a few decades. This can be completely dependent on personal goals and what your investment is in.
Time & Effort
Investing after all the research, debating, and stress before buying your investment can be time consuming and the rest is just sitting around and waiting till you’re ready to sell.
Trading is more hands-on and can be a constant game. If you want to make a profit, you need to make the effort whether that’s keeping updated on the stock market or potential companies.
Trading and investing is a highly volatile industry and, with the increase in adoption, this to has led to an increase in the number of traders and investors falling victim to scams. If you find you have lost money through online trading, it’s important to enlist the help of a wealth recovery attorney as soon as you spot the signs and get your recovery process started.