Trading vs. Investing

In common conversation, and even in the media, the terms “trading” and “investing” are frequently used interchangeably. However, there is a difference between the two that is important to understand when choosing a wealth building strategy.

Simply put, a trader invests for short term profits, while an investor looks for investments to buy and hold for a long time. Traders are trying to make a lot of small gains, while investors aim for large, steady gains over months or years.

Another important difference is that a trader typically makes decisions based on charts and numbers, such as a stock chart. In fact, some traders will glance at a stock chart and buy or sell stocks without even knowing what the company does, because they don’t plan to hold the stock long enough for that to matter.

An investor, meanwhile, will study the company, the industry, and the market. They will also look at economic indicators and decide if the company is a good pick for the current market conditions. If so, they will buy the stocks and hold them.

Neither method is better or worse than the other, but they are different, and you should understand which one is better for your own needs. Trading is probably more risky, because while stocks usually go upward over the long term, they can be very volatile in the short term. But long term investing has risks of its own. There is always the possibility that you could hold a stock for months and it ends up going nowhere, or even decreases in value.

In general, investing is a good choice for long term growth, while trading can be a good pick if you want the short term income. But it helps to at least learn about both to make an informed decision about which method to choose.