HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Investing vs. Trading: What’s the Difference?


Over the past couple of decades, many people started showing interest in profiting from financial markets, whether through trading or investing. However, it has become evident that a lot of beginners have only a very basic understanding of what investing and trading truly entail, while some don’t even know the difference between these two strategies.

In this article we’re going to look into what trading and investing are exactly, what are the differences between them, and which strategy suits you the best.

Key Takeaways

Investing vs. trading: main differences

Let’s start with the basics. The most obvious difference between investors and traders is the holding period, or the amount of time they keep their positions open. Investors aim to make profit from long-term price changes, holding their orders for months or years at a time, while traders capitalize on short-term price movements, sometimes closing their trades within mere hours or even seconds after opening them.

Another major difference is the size of the initial capital investors and traders need. Since profiting from investments takes quite a long time, it’s more reasonable to invest large amounts of money at once. With trading, however, it’s not necessary to have a huge capital to start trading. Besides, trading is associated with a lot of risk, so pooling a lot of money into short-term trades can leave traders with a large amount of losses.

But what interests beginners the most is the amount of potential profit they can make from trading or investing. Traders tend to earn money in small amounts every day, while investors aim to generate a long-term income off their assets, not trying to actively participate or control the amount of profit they plan to get. Now that we know the main differences between investing and trading, let’s look into both mechanisms more closely and find out which one suits your goals and abilities better.

What is trading?

Trading is a strategy that involves buying and selling stocks, currencies, commodities and other financial instruments over a short period of time. Traders focus on buying assets at a lower price and selling them at a higher price, capitalizing on short-term price fluctuations. They’re not interested in stable markets. In fact, the more volatile the market is, the more profit traders can make from each trade.

Time is of essence for traders, so they tend to use technical analysis and various indicators to predict the future movement of the price and quickly place orders to catch the price changes and try to profit from them. Traders also need to constantly keep their eyes on the market to identify best trading opportunities and use them to try and earn profit.

Another important thing about trading is that traders need to put in a lot of effort to make noticeable income, if any income at all. The price fluctuations that traders try to catch are usually pretty small, so they have to make a lot of trades to meet their profit targets. As a rule, a lot of traders quit their full-time jobs in order to earn steady income from trading.

Pros and cons of trading

Let’s now look at the advantages and disadvantages of trading. The advantages of trading include:

As for the disadvantages, here are some things you should think about before deciding to become a trader:

What is investing?

Investing is a long-term strategy that involves buying an asset (stocks, real estate, commodities, metals, etc.) and holding it over a long period of time with the expectation that its value will rise significantly. Unlike traders, investors usually apply fundamental analysis while looking for assets to acquire. As their aim is to generate long-term profit, they are interested to know a company’s current earnings, revenue, and its growth potential. Once they buy an asset, they stick to passively holding the asset for a predetermined amount of time, depending on their goals (retirement, college tuition, down payment for a house etc.).

Since investors tend to hold their assets for long periods of time, they aren’t affected by short-term market volatility. If the market experiences some sort of calamity, investors tend to wait it out until it stabilizes again. However, in order to minimize the risks investors tend to diversify their investments and combine several assets from different markets and industries in a single portfolio. That way, if one of their investments doesn’t work out the way they planned, their earnings will not be strongly affected.

Pros and cons of investing

The advantages of investing include:

However, investing does have some disadvantages too:

Is one better than the other?

As you can see, trading and investing are vastly different strategies that require different amounts of effort and aim to achieve different results. The answer to the question of which one is better for you depends on your personal goals. Do you want to have a stable income or get your profit at some point in the future? Are you ready to spend several hours every day in front of the screen? Or would you rather check your assets only once in a while? Do you enjoy working in a fast paced environment and doing a lot of research? Or do you prefer the laid-back style of investing?

Trading can potentially bring you more money than investing, but it requires more time and effort from you. Plus, the risks from trading outweigh the risks from investing, so you need to carefully research each trade and spend a lot of time developing your trading plan.

But in the end, only you know what you need and what you can do in your current circumstances.

Conclusion

Both trading and investing have the potential to be quite profitable to its users. However, both traders and investors have to face difficulties on their way to earn money. Before deciding on what to do, it’s better to assess your goals and expectations, as well as what resources you have on hand and whether they would be enough to allow you to trade or invest.

#source


RELATED

The Criticality of Stop Orders in Trading: An In-Depth Guide

The vast universe of financial markets demands a keen understanding of its intricacies. For traders and investors alike, navigating this complex ecosystem is pivotal...

What should you know about cryptocurrencies?

eXcentral is expanding the number of assets and markets available for traders to invest in every month. One of the highest growing markets, if not the highest...

How to Use ChatGPT in Trading?

ChatGPT is a versatile artificial intelligence that can be a useful tool for traders. There are no specific strategies for working with ChatGPT. What you do with it and how...

Reading Forex Charts: Decoding Patterns, Indicators, and Informed Decisions

In the world of forex trading, understanding price movements is paramount. Forex charts serve as the canvas upon which traders analyze historical and current price data to make informed decisions...

What Is Bitcoin and How Does It Work?

You must have heard about it. The first and most famous cryptocurrency has been in the headlines due to a vertiginous increase in value, breaking the threshold of $1,000 for the first time on 1 January 2017...

What is crypto mining?

Cryptocurrency mining has brought about a new gold rush where individuals and businesses are deploying mining hardware to earn as much cryptocurrency as possible as so-called miners...

The Importance of Analysis in the Forex Market

Forex market analysis comes in two distinct forms; technical and fundamental analysis. Discussions have raged since the birth of trading as to which analysis is best, or whether...

Slang and financial markets: animals in trading

Animals and the money: Octa broker gathered the most popular slang words in financial markets.

ETF vs Index Fund: Similarities and Differences

Wondering what is the difference between ETFs and index funds? This article explains that and more, including what to look out for when choosing between them. Index funds and ETFs...

The Evolution and Significance of Forex Trading

Ever since its establishment in the 1970s, forex trading has seen a rapid transformation. One of the chief driving forces behind its monumental growth has been the explosion of technology, which enabled the creation of online trading platforms...

Curbing your losses with Stop Loss and Take Profit

Trading on a stock exchange is always connected with great risks. That's where Stop Loss and Take Profit come into play: these are helpful tools used by traders to minimize...

What is a Share Split?

Companies may occasionally, conduct share splits, this is when the company lowers the price of its shares by splitting each existing share...

Beginner's Guide to Share CFDs Trading

Prospective traders can't run out of trading options due to the avalanche of investment opportunities in the trading market. In addition to trading Forex and cryptocurrency...

Beginner's Guide to Forex Trading with FXTM

If you're new to the world of forex trading and looking to embark on your trading journey, you've come to the right place. Forex trading can seem complex at first, but with the right guidance...

Forex Trading - The Actual Financial Solution

Forex trading has proven to be a steady source of income for many traders across the globe. The amazing statistics in 50+ Forex & Trading Industry Statistics...

An overview of platinum trading

When traders log into their metatrader 4 account and consider trading precious metals, it is most likely that the metals of gold and silver first spring to mind...

What Is a Market Maker?

Anyone who's generally familiar with trading has heard about buyers, sellers and brokers. But there's one type of market participant that often gets...

The Ultimate Guide To Stock Investing For Complete Beginners

There`s hardly a single person today who has heard about the passive income that investing can consistently bring in. There are many examples: from the great financiers...

Stop Loss: the lifeline of every trader

Stop Loss (SL) is one of the most important concepts in the FX market. Every trader has the opportunity to benefit from this trading tool.

How to Trade in Forex if You Already Have a Job

This article is devoted to an issue that has always been topical for many traders: how to combine trading and employment? What does one need it for, and what can help...

FP Markets information and reviews
FP Markets
81%
RoboForex information and reviews
RoboForex
77%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.