Overview: Stock Investing
To understand stock investing, first, let’s understand what investing is. Investing means committing resources for certain benefits. If you are using your resources whether it is time, money, energy or effort in hope that it will turn into expected benefit will be considered an investment.
In reference to stocks, Stock investing simply means investing in stocks. When you invest in stocks, you receive fractional ownership in a company whose stock you buy and become a member of that company kind of part-owner of it. When we expect to invest in the stock of a company, we expect to receive back the principal sum that we put into requiring a financial asset of the company and return on investment (ROI). This return could be in the form of interest money, dividend money, or stock.
The pursuance behind stock investing is capital appreciation and to build wealth over an extended period of time through buying, holding, and selling of stocks. Because the shares of the companies are traded on exchanges, their market prices fluctuate as per the demand and supply in the market. As a result, the market prices of stocks go above or below the nominal value. Generally, investments are held for years or decades, in believing that the prices will rebound after the short-term fluctuations or downtrends and losses will be recovered.
Overview: Stock Trading
Stock trading is typically the buying and selling of stocks to capitalize on volatile movements in stock prices. Rather than buying and holding stocks for years, short-term trading encourages making profits in the short-term periods – minutes, hours, days, or month. It involves more frequent transactions of stocks where the traders seek profits by buying at a lower price and selling at a higher price within a short period of time. In a falling market, traders make profits by selling at a higher price and buying to cover at a lower price i.e. short-selling. In doing so, the traders often use a stop-loss to safeguard his/her position at a predetermined price level.
In short, the stock investing takes a long-term approach for capital appreciation as potential reward meanwhile the stock trading takes a short-term approach to maximize returns daily, monthly, or quarterly basis. Here, traders trade as per their trading styles – positional trading, intraday trading, swing trading, and scalp trading based out on factors like risk tolerance, trading experience, and goals.
Comparison Table: Stock Investing Vs Stock Trading
Investing and trading are two different approaches to wealth creation or generating profits in the stock market. For better understanding, we’ve mentioned key differences between stock investing and trading which are as below:
|Aspects||Stock Investing||Stock Trading|
|Goal||Aiming to generate wealth over an extended period of time.||Aiming to capitalize on short-term fluctuation in share prices to make quick profits.|
|Period||Performs buying and holding shares over years, decades and more.||Performs frequent buying and selling shares over a relatively short period of time – days, weeks, and months. Sometimes, less than minutes.|
|Risk||Lower risk||Higher Risk|
|Return||Small returns in short-term but deliver higher returns in the long run, if held for a longer period of time.||As the prices are volatile so the potential of returns are high, but so do losses.|
|Strategy||Buy to Hold||Buy to Sell|
Which is better for you: Stock Investing or Trading?
Deciding which is better for you: investing or trading? – You need to think about your goals. What is your goal: Is it to generate quick profits over a short period of time or build wealth to achieve future financial goals? For individuals who hold less or zero knowledge of financial markets should choose to invest over a period of time that trading. It is because the stock trading would require constant monitoring of stocks. If you are comfortable reading charts and graphs for hours in a day then trading would be for you otherwise being a middle-class salaried person, stock investing is the best investment option for you. So, if you do not have any plan to beat the market but the specific goals to achieve future financial objectives then stock investing would be well-suited for you.
Nevertheless, it is all yours to decide whether to invest or trade in the stock market. Choose wisely!