How Trading and Investing Differ from Each Other

By | November 1, 2011

Trading is a process of buying and selling commodities or securities in short-term basis, generally between one day and 6 months with the expectation of making quick profits. Whereas, investment is putting money into something with the expectation of high degree of security for both the principal amount as well as the satisfactory returns gained within a period of maturity.

Generally trading depends on the emotions and intentions of a person and moreover needs much attention to the daily fluctuations of the market. But when it comes to investing in a stock or a commodity, the investor doesn’t care for the daily up and down price movements of the stocks, as he makes an investment to hold it for the long run.

A trader has an access to market data, analyzes the charts for looking an upcoming events and makes a right decision in trade execution. On the other hand, investor simply buys a company’s stock with no predefined notion of when he or she will sell, if ever. Thus, we can say that meeting a criteria of having a predefined exit, makes it a trade but not an investment.

Investing looks more towards the capital gains overtime i.e, it mainly depends on the returns obtained through the dividends and the bond interest payments, but unlike in trading, this is not the prime motivation; it mainly depends on the quick capital appreciation.

For many people, trading and investing seems like the same thing; the mechanics of buying and selling are basically same, but the main difference between trading and investing is the intention and the definition of the objectives used by the person.