Investing vs. Trading: What even is the difference? - Mint & Gold Story (2024)

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The difference between trading and investing in the stock market is an important distinction when you’re trying to understand market fundamentals, and working on your personal finance strategy.

If you’re just starting out with understanding the stock market, the economy and all the things that make the system run, it can be overwhelming.

Every time I have a conversation about the stock market, it seems to be under the assumption that there is some form of gambling going on with the markets. A form of gambling that only some elite group of people are able to participate it.

I like to keep up with the stock market, and the world of finance, but I don’t consider myself to be a gambler. I definitely do not have the risk appetite of someone who plays poker at the casino.

Most of my stock market portfolio is invested in good quality companies with strong business models, and great long-term potential. I do have a small portion of money that is set aside for trading. This means that I might be getting in and out of a stock position really quickly, within hours, or days.

Knowing the difference between investing and trading can help you become a more confident investor, while particpating in market returns to grow your wealth.

So what really is the difference between trading and investing?

Investing vs. Trading: What even is the difference? - Mint & Gold Story (1)

Trading vs. Investing: What is the difference?

Timing: Length of position

Investors buy stocks to hold long term. Whether 5, 10, 15 years, whatever the time horizon one might have for growing wealth. Investors aren’t usually looking to time the market.

Traders, on the hand, typically look to time the time – buy low, sell high. A trader would be looking to get in and out of stock holdings within minutes, hours, or a few days.

Goal

Investors typically have a goal to invest, and build wealth over the long-term by purchasing small pieces of good businesses. Their mentality is to buy and hold “forever” or at least a very long period of time.

Traders are looking to get in and out of trades as quickly and profitably as possible. They’re always looking for opportunities where they think the market has not fully priced in a stock.

Time required

If you’re investing for the long term, you don’t need to invest a large part of your time in this activity. It should be an automatic part of your financial life.

As a long term investor, you invest periodically, in fundamentally strong companies. You won’t worry so much about daily ups and downs of a stock, as long as they have a strong base to continue working in the future.

As an investor, the mindset is that you are literally investing in the business. You won’t be looking at daily fluctuations of your net worth, but rather focus on overall trend of your positions over weeks, months or years.

A trader, however, look at their holdings daily, or even several times a day. They are trying to profit off the price movement of stocks, and would be getting in and out of trades within minutes, hours, or a few days.

Belief

Investors hold stocks for long term. They believe that the businesses that they have invested in will be around for a long time, and will continue to generate profits in the future which will help increase their stock prices and/or dividends.

A trader would be looking to get in and out of trades very quickly to turn a profit. They are not so concerned with whether a company may be around over the next few years, because they do not anticipate holding the stocks for that long.

Type of knowledge – technical vs. fundamental

Typically, an investor will ask whether the company that they are investing in, is in a position to do well in the future. What are their long term prospects? Is the business in good shape? They might look at company statements, and quarterly filings to determine how profitable the businesses is and might continue to be.

On the other hand, traders typically focus on technical indicators, reading stock charts, and market psychology. Their goal is determine based on market psychology and trends whether a stock will move higher or lower in the short or medium term.

Investing vs. Trading: What even is the difference? - Mint & Gold Story (2)

Making money

An investor is looking looking to grow wealth as these businesses perform better. Investors anticipate that businesses will grow their profits, then reinvest their profits into future growth and/or maybe pay dividends. As an investor, you might consider purchasing stocks with dividend income, as a way to increase your wealth.

A trader is typically risking capital for a return in the short term. They are focused on making money from buying low and selling high, and making a return from these short term price movements. A trader would not consider dividend income as part of their strategy, as they don’t intend to hold stocks long enough to realize dividend payments.

What’s right for me?

Now that you have a guide to the difference, it is time to incorporate this knowledge in your financial strategy.

If your goal is to create long term wealth, then investing is definitely the strategy you need.

My Philosophy: Trading is not for everyone; Investing should be for everyone.

On a personal note, I engage in both investing and in trading.

Trading is a semi-hobby for me. But I keep a separate account, with a small small sum of money set aside to engage in riskier trades, where the focus is on getting into stocks at the right price, focusing on the technical analysis and not pay too much attention to the future value of the company (as compared to investing). Majority of my portfolio however is in stable companies, index funds and ETFs, with a focus on slowly growing wealth.

You should make this assessment based on your personal financial situation, level of knowledge, interest and risk appetite. Trading can be a fun hobby or an additional source of income.

But for most people the first thing to focus on is to create a plan to grow your wealth long term, and create a sustainable plan to grow your wealth through investing!

Cheers,

Investing vs. Trading: What even is the difference? - Mint & Gold Story (3)
Investing vs. Trading: What even is the difference? - Mint & Gold Story (2024)

FAQs

What is the difference between investing and trading? ›

The difference is in the timeline. Stock trading is about buying and selling shares for short-term profit, such as within a week or a day. Investing refers to buying and selling stocks for long-term gains, such as within months or years.

Is investing in Gold better than investing in stocks? ›

stocks: Which is the better investment? Stocks have generally performed better than gold over the years, but there can be exceptions. Looking back 20 years, for example, gold has outperformed the S&P 500.

What is the difference between traders and investors activity? ›

Trading involves buying and selling assets (such as stocks) for short-term gains. Traders primarily focus on share prices as they make their decisions. Investors, on the other hand, focus on long-term gains when they buy and sell investment vehicles.

Why is investing better than trading? ›

Investing works better than trading for most

So when you take a stake, you expect to hold it for a while, not simply sell it when the price jumps or before the next person offloads their stake. Passive investing via funds (either ETFs or mutual funds) lets you enjoy the return of the target index.

How much money do day traders with $10,000 accounts make per day on average? ›

How much money do day traders with $10000 accounts make per day on average? On average, day traders with $10,000 accounts can make $200-$600 per day, with skilled traders aiming for 2%-5% returns daily. So, it is possible to achieve a daily profit of $200 to $600 with a $10,000 account.

What is the Warren Buffett Rule? ›

The Buffett Rule is the basic principle that no household making over $1 million annually should pay a smaller share of their income in taxes than middle-class families pay. Warren Buffett has famously stated that he pays a lower tax rate than his secretary, but as this report documents this situation is not uncommon.

Is gold still a good investment in 2024? ›

"We think if there's a surge in market volatility, especially around the election this fall, gold could make new highs in 2024. If volatility remains low, fundamentals should drive gold higher over the next 12 months regardless of market volatility," Patrick Kennedy, founding partner at AllSource Investments, says.

Does Warren Buffett Own gold? ›

The answer to whether Warren Buffett invests in gold is a simple “no.” This probably doesn't surprise the “Oracle of Omaha” followers, as he's been very outspoken and open regarding his investment style, strategies and ownership.

What are the three types of investors? ›

The three types of investors in a business are pre-investors, passive investors, and active investors. Pre-investors are those that are not professional investors.

What are some of the key differences between investing and day trading? ›

Investing is long-term and involves lesser risk, while trading is short-term and involves high risk. Both earn profits, but traders frequently earn more profit compared to investors when they make the right decisions, and the market is performing accordingly.

Are day traders considered investors? ›

If the nature of your trading activities doesn't qualify as a trade or business, you're generally considered an investor and not a trader. It doesn't matter whether you call yourself a trader or a day trader, you're an investor for Federal income tax purposes.

Which gives more return, trading or investing? ›

Why investments tend to outperform trading profits? There are 5 reasons why investment returns tend to outperform investments.. Power of compounding works best in investing. What compounding means is that the longer you hold stocks the more it earns returns and therefore the more your returns earn returns.

Which trading is best for beginners? ›

Day trading can be a bear fruits for beginners who are willing to put in the time and effort to learn the markets and develop their trading skills.

Should I be investing or trading? ›

Trading is about identifying short-term opportunities, while investing typically targets the long term. When you buy a stock—or any asset—make sure you know what you're looking to achieve, how much risk you're willing to tolerate, and how long you think it will take.

Which is riskier trading or investing? ›

Search for "What's the difference between trading and investing?" and find some common themes and explanations: Trading is short-term/investing is long-term, Trading is risky/investing is safe, and so on…

Is trade and investment the same? ›

Investing typically involves hanging onto an asset for years, if not decades. Trading on the other hand could mean buying and selling many types of assets within the span of a day, week, or month.

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