What is the difference between stock investing and stock trading? What is the difference between stock investors and traders; since both of them are buying from the same market? Well, this article is going to reveal the differences. Knowing the differences between stock trading and stock investing can help you make a well-informed decision as to which of the two you should focus on.
These differences are more than what the definitions of both terms suggest, and a good knowledge of them can make all the difference between an enlightened entrepreneur and a clueless one. In this post, we will be discussing the differences between stock trading and stock investing. So if you knew only a few differences before now, this post is for you. Here are ten differences between the two options:
Top 10 Differences between Stock Investing and Stock Trading
Table of Content
- 1. Stock investing is usually long-term, while stock trading is short term
- 2. Stock investing is less risky than stock trading
- 3. Stock investing requires little knowledge, but stock trading requires more
- 4. Stock investing is usually more profitable than stock trading
- 5. Stock investing usually requires more capital that stock trading does
- 6. Stock investing ignores the effects of fluctuations, but stock trading doesn’t
- 7. Stock investing requires less monitoring than stock trading
- 8. Stock investing is for individuals with low risk tolerance
- 9. Stock investing can help cater for certain special needs
- 10. Stock investing is for part time or multiple entrepreneurs
1. Stock investing is usually long-term, while stock trading is short term
Most of the time, stock investors go into in the stock market with a long-term motive. They invest their funds for years (as long as 20 years in some cases). They understand and appreciate the fact that their funds will grow slowly and steadily over time.
Stock traders, on the other hand, shuttle between companies within the span of one day. In fact, a stock trader may trade with up to 5 different companies within one hour. Stock traders are after the quick profits that they can get from penny stocks.
2. Stock investing is less risky than stock trading
Because stock investing involves watching your funds grow slowly and steadily over time, you are more likely to record huge profits. However, stock trading involves taking high-risk buying decisions that predispose traders to huge losses.
3. Stock investing requires little knowledge, but stock trading requires more
To invest in the stock market, all you need is knowledge of the basic terms plus the fundamental principle: “Buy low, sell high.” But stock trading requires you to know more. In addition to the basic terms and principles, you must understand price patterns and projection trends as well as market charts, graphs, and indicators. You must also research the market in order to compare companies and discover excellent opportunities.
4. Stock investing is usually more profitable than stock trading
Although stock investing may deny you access to your funds for a very long time, you will most likely make huge profits in the end because you would have allowed your profits to gather over time. Stock trading, on the other hand, will not bring long-term wealth (although it can bring worthwhile profits as well) because traders take their earnings quickly.
5. Stock investing usually requires more capital that stock trading does
Because stock investing involves placing funds on a promising investment for a long term, substantial amounts are usually required as capital. However, this may not hold in many cases. But as for stock trading, a little capital would suffice most of the time.
6. Stock investing ignores the effects of fluctuations, but stock trading doesn’t
Market fluctuations are inevitable, but stock investors ignore these fluctuations with the expectation that prices will rebound and losses will be recovered eventually, which is the usual case. Stock traders, on the other hand, take even the slightest market fluctuations very seriously, as these could mean huge profits or losses to them.
7. Stock investing requires less monitoring than stock trading
Of course, stock investors place their funds in a business with the intent to “harvest” after some years. So, there’s really no need for them to keep track of their stocks on a daily basis. As for stock traders, they need to keep watch over their investment. In fact, some stock traders are always having their eyes fixed on market changes, as they need to make quick decisions.
8. Stock investing is for individuals with low risk tolerance
If you are likely to go hypertensive when the news of a loss is broken to you, then stock investing is better for you, as your chances of losing are very slim. Stock trading is for individuals with high tolerance to risk, who are not much disturbed when they lose their funds.
9. Stock investing can help cater for certain special needs
For example, most stock investors buy stocks with the aim of selling them at retirement. Some invest so that they will pay off their debts with the returns from the investment. Stock trading can hardly be used for such purposes, as the returns are less tangible.
10. Stock investing is for part time or multiple entrepreneurs
Because stock investing requires less monitoring, it’s the better option for those who monitor multiple businesses. So, a stock investor is like a part-time worker. Stock trading, on the other hand, requires active participation. So, it cannot be run on a part-time basis.