Investment vs. Trading What is the difference? 2021 Guide

Investment vs. Trading What is the difference?

January 23, 2021
1 month ago

Both investing and trading are two very common financial practices that are used to obtain income from the markets, but they require different methodologies and ways of operating.

When you decide to invest in the stock market, the fundamentals of the company you're investing in are analyzed in depth. That is, how the company is working, if it is generating profits, what its turnover is like, if it has debts, what the competition is like, etc. This is done in order to decide whether or not to buy assets in the stock market (which can be stocks, ETFs or bonds) to hold in the future, normally over the mid to long term.

Not only that, in this kind of investment you become the owner of the purchased assets, therefore, you are the owner of a part of the company. In fact, with acquisitions of many assets, it is possible to even participate in company's decision making.

A typical strategy consists of retaining the bought assets for a long period of time until it is decided to put them up for sale, usually for a price higher than the purchase price. Generating longer-term profits is key. The price of the asset undergoes price changes over time, which can be taken advantage of, and investors can also take advantage of interest, dividends and compound returns during that period of time.

To invest it is not so relevant to know the precise price of the share or look at the historical trend graphs in detail, or to make analysis on the historical and current movements. With Trading, however, it is. It is a way of operating that requires greater involvement, analysis, and perseverance. This is one of the key differences.

In Trading, the fundamentals do not matter so much, the evolution of the price and its daily history matter: if there are rises or falls, what the market graphs can reveal, as well as the volume of purchase and sale of currencies at that time. There is a lot of speculation looking for opportunities in the rising and falling markets to enter and exit quickly - making operations in the short or medium term, looking for smaller and more frequent profits.

There are different styles of trading, each with their own strategies: scalping, day trading, swing trading, trend trading, and position trading, even social trading.

Trading is a more open-ended concept than investing, with many markets and types of trading to get involved in. Some of the most popular markets in which trading is operated are Forex, Cryptocurrencies, Commodities, Indices, etc.

In the end, it is about investigating and evaluating which option you identify with the most. Do you prefer something that's faster, more open and more technical (Trading) or something that's far longer term and more based on company strengths and weakenesses (Investing).

To learn more about trading subscribe to the Trader Club and our YouTube channel where you will find strategic tools to help you train to become a financial professional.

CANAL TRADER

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