What's The Difference Between Investing And Stock Trading? ~ SAM Trading Tips

To the uninitiated, the distinction between investing and stock trading may seem to be subtle, if not non-existent. But, when you look into it a little more deeply, you will begin to see that there are some very major differences indeed. The two methods require different skills and, more importantly, mindsets that are almost diametrically opposed. Yes, they both involve trying to make a profit from the stock market but they are as similar as watching a single game of baseball is to following the whole of the World Series.

This is because stock trading is essentially done over the short term while investing is a far longer-term proposition.

Invest for the long term

To examine investing first, the overall goal is to gradually build worth over a matter of years, or even decades. The shrewd investor will develop a portfolio designed to be well balanced with a range of investments offering differing levels of risk and reward built into them. So, for example, they might choose to invest in funds in so-called emerging markets that tend to be more volatile while also having money in the more stable government bonds whose value may grow more slowly but which won't be so liable to fluctuation.

Investing also gives the chance to use strategies like buying when the market is low and being prepared to wait for it to gradually increase in value over time. This has been a strategy that many have used successfully following the global financial crisis of 2008.

Trade for the short term

Stock trading, on the other hand, is a far more short-term approach. Its overall aim is to make quick profits rather than building long-term growth. It involves the trading in not just stocks and shares but also in forex currency pairs and other commodities. Also, unlike investing, it can even be profitable when the values of these fall if the person trading sells short in a bear market. This is a method of selling stock for one price and then buying it back at a lower price later.

Trading is also typically carried out using intermediaries called trading platforms. These are brokers that carry out the trades on your behalf in exchange for a fee. There are a wide number to choose from and you'll find listed here the best trading platforms currently available. It's a good idea to do some thorough research such as consulting this list before choosing any one as there are significant differences in the way that they operate and the support that they give.

The cautious approach

One especially useful feature that most do offer is a time-limited demo account. This allows you to practice trading without committing actual cash. You will also find a number of trading platforms also offer blogs and other tutorials.

There are also different kinds of traders ranging from position traders who hold onto to stocks for a number of months to so-called scalp traders who rarely hold on to the same stock for an hour - which could not be more different from an investor.

As to whether to become an investor or a trader, it's a matter of personal preference and circumstances but both approaches definitely have their merits.

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