Investing vs Trading



For some individuals, the term investing is synonymous with trading; however, there are stark differences. The principal similarity between the two philosophies is that both investors and traders dispense their capital for ownership of assets and do so with the hope of gaining wealth for their investment. The dichotomy between the two disciplines relies on the difference in their practice and expectation.

Investors expend their money into some asset form with the intention to gain capital. Each investor has a risk tolerance which may drive their decision on what their investment should be. An investor has a litany of options in today’s economy: from rare objects, stocks, bonds, to even cryptocurrency. Typically an investor will purchase an asset with the expectation that its value will increase over time. Their choice in investment may be motivated by economic factors, a company’s viability, feeling toward a particular asset, market sentiment, and industrial potential. Not all investments come with the same risk or succeed in yielding capital gains. Investors are unlikely to take the level of risk that a typical trader takes.

Traders take positions in financial instruments with the intent to hold them for a short period for a quick return on equity. Traders analyze the price of a given asset through fundamental and technical analysis. Traders are more vulnerable to market volatility; however, volatility also provides a gateway for increased gain. Someone who actively trades may not necessarily care for an asset they invest in if the potential for profit is robust. The assets and timeline a trader choose mostly depends on their style of trading.

  • A Scalp Trader holds a position (quantity and price at purchase) for a very short duration of time (seconds to minutes)
  • A Day Trader holds their position throughout the day waiting for an opportunity to sell for a positive return. By definition, they do not hold a position overnight.
  • A Swing Trader will hold their position days even weeks
  • A Position Trader is someone who is less concerned about short-term market fluctuation and maintains their position for a longer duration (months maybe even years)

The shorter the duration a position is held the more a trader must rely on volatility, liquidity, and transaction cost.

The practice of investing and trading is not limited to one individual. There is an array of investment and trading firms. Local banks that provide small business loans are considered an investor just as Barclays PLC is a trading company. Many of these companies offer a variety of services design and tailored to the risk tolerance of each customer.



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