Trading and investing: what is the difference

Profit from financial markets can be extracted according to several schemes, each of which assumes a certain specificity of activity. When trading, you will have to trade on the stock exchange within the framework of short-term speculation, the remuneration for which is formed on the difference between the purchase and sale price of an asset.

More serious market players prefer to profit from investing in an asset and expecting its value to grow, and, as a result, their well-being.

What is trading

Activity in the trading format involves the direct active participation of a market player in earnings. To make a profit under this scheme, you need to master the basics of technical and fundamental analysis, as well as be able to apply them in practice in order to predict market sentiment. To work successfully, you need to develop your own trading system and follow it implicitly. Trading is directly related to psychological aspects and requires the player to be able to control his emotions. A market player needs to be able to cope with feelings such as excitement and greed, which are often the reason for the difficulty of closing unprofitable positions in a timely manner.

According to statistics, only 3% achieve success in this area, but after some time after mastering the understanding of the market, emotional burnout occurs. It becomes the reason for changing the type of activity from trading to investing.

What are investments and what is their difference from trading

Investing is a more serious approach to earning money in the financial market than trading. If the trader’s transactions last from several hours to several days, weeks and months, then the asset in the investment format is bought in a long-term order. Before buying, the investor carefully analyzes the fundamental factors. Trading can be compared to a casino game in which a player tries to shift the mathematical expectation in his favor. He can either win or lose. Buying an asset for investment, a person counts on long-term passive earnings. Figuratively, we can say that he buys a stake in the business.

Summary

You can earn money in the financial markets by trading or investing. The second way of earning income is less risky and allows you to count on passive earnings in a long-term format. If in trading you need to focus on the indications of technical analysis, then in the investment scheme, investors act on fundamental indications.