Why is Investing riskier than Trading?
Trading when done in the right way can fetch you way more Returns with lesser Risk than Investing… How? Let’s find out.
Truly Speaking Investing is a form of Trading & Trading is also a form of Investing… Seems like a Palindrome right!!!
I’m not going to bore you with textbook definitions about Investing & Trading. In Simple Terms, Investing done for Short duration of time is Trading & Trading done for a Long duration of time is Investing
Let me define risk so that you can figure out which is riskier…
Every time you take a Trade or make an Investment, you are exposing yourself to the inherent risk of losing your Money.
Most people are of the notion that Trading is Risky… Thanks to so many people who have blown up their accounts due to Trading & the fact that 95% of the Retail Traders lose Money by Trading.
However are there no instances where people haven’t lost their Money by Investing… Sure there is, Actually there are too many instances of it. However they don’t come into light because of the Long Duration.
What do I mean by Duration?
It is nothing but amount of time you are in a Trade/Investment.
Most people after having read some famous books like “Intelligent Investor”, “Rich Dad, Poor Dad” get inspired to invest there Money. What they don’t realize is that Markets are not the same as they were 20–30 Years back
So will this Methodology of Investing for 10–20 Years still work Today?
Let me be very frank in this regard, there are so many Stocks out there to Invest & picking the right one out of them is truly Tough. Even if you pick the right one, it is tough to hold it for longer duration. Most importantly your Money gets locked in for all those Years when the Stock isn’t moving at all.
Now, Time to understand why Investing is more Risky than Trading.
There are two types of Risk involved in Stock Market..
- Risk under your Control
- Risk out of your Control
I guess you haven’t heard this yet, right!!! Don’t worry, I’m going to simplify it for you.
Risk is always under your Control as long as the Markets are Open… What do I mean by this? Whenever the Stock goes against you, you should be able to exit out of your Positions as early as possible to minimize the risk. So as long as the Market is Open, you can always go ahead & push the Sell Button.
Risk is always out of your Control when the Markets are Closed… I mean what can you do if the Stock is Gapping Down tomorrow when you have bought it..Nothing right!! The only thing you can do here is to curse your fate & book the Loss.
By now, you would have understood why holding positions overnight is always Risky than trading it during the Market hours..
Let me now come back to the Duration Concept… Remember Investing always has a higher Duration period than Trading. As you know already, Longer the Duration you hold, more overnight positions you need to withstand & most probably you will not be able to sleep well during night time.
So what is a better Approach?
Learn Trading..
How to Learn Trading?
Follow me as I’m going to reveal the steps to become a consistently profitable Trader..
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.
