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At the very initial stage, when a person enters the financial markets, he is faced with a choice – to trade on his own or choose more passive ways of investing. In this article, we have set ourselves the goal of helping you make the right choice so that you 100% realize all your expectations for income from the financial markets.
Trading and investing - two different approaches to stock trading
Trading and investing have one common goal – to receive income from their free financial resources. It is because of the common goal that beginners often believe that trading and investing are one and the same. On the one hand, there is a significant amount of truth in this. But on the other hand, there is a certain fine line that allows you to isolate these two concepts. Let’s figure out who an investor and a trader are, as well as what is the difference between them. As a result, after reading the article, you will be able to decide for yourself what is right for you.
What is trading?
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First, let’s understand what trading is.
Trading is an activity on various exchanges for the purpose of generating income. It is carried out by market participants, called traders, using their own or investor funds. The main task of a trader is to buy an asset cheaper and sell more expensive.
In principle, absolutely anyone can engage in trading. This requires some free time and some financial savings to invest in trading. At the same time, there is even no need to leave the main job or close the existing business.
But you should not take trading as something very simple, which, as they say, any student can easily cope with. Independent trading on the stock exchange is quite complicated. A trader needs to be trained, develop his own trading strategy, gain experience on a virtual or real cent account. Only after that, you can move on to trading with the entire amount of capital allocated for trading.
What are the goals of the investor?
The investor pursues the same goals as the trader, but with some differences. An investor does not make a profit through active trading like a trader. The difference between trading and investing is that an investor invests money in various assets and expects that they will bring him profit in the form of dividends, as well as an increase in the value of assets. These can be shares of various companies, government bonds, etc. At the same time, investors can also be divided into two types:
- Investors who are independently involved in the formation of the portfolio. They study various company reports, predict the future value of their shares, monitor interest rates in order to purchase profitable government bonds that give high redemption rates in the medium and long term. Such investment activity also implies serious training, and it is also highly desirable to have a financial or economic education.
- Investors who prefer passive investing. With this type of investment, you do not need to study and analyze anything, but simply transfer your finances to management or connect to a social trading platform to copy the trades of professionals into your account.
We hope that we were able to explain to you in simple terms what is the difference between a trader and an investor.
How do traders earn?
Given the focus of our Internet resource, let’s return to traders again and consider in more detail how they make money on the stock exchange. In general, a trader can easily trade on any exchange – currency, stock, commodity, cryptocurrency, etc. Modern brokers provide their clients with such an opportunity.
It should be noted that traders earn not only on the growth of the value of the asset, but also on its fall. For example, by trading CFDs on natural gas, you can earn both on the increase in its value and on the decrease.
To make a profit, traders use various trading strategies. Someone uses short-term (pipsing and scalping) intraday, someone medium-term or long-term. It all depends on how quickly the trader wants to make a profit and what risks he is willing to bear. Trading can be done manually, as well as with the help of semi-automatic and automatic trading systems (advisors, robots).
You always need to know why you come to the market
As you can see, before you connect your life with the financial markets, it is important to know what exactly you want. Are you ready to go through a fairly complex training in trading, including the study of technical and fundamental analysis, the development of your own trading strategy, and much more. Do you have any free time and desire for all this? The same applies to investing, where you need to immerse yourself in the statistical quarterly reporting of companies, independently form your investment portfolio.
