Most of the person having a question which is new to the financial markets, and even occasionally debated by experienced participants. That question is how one differentiates between trading and investing. Because both trading and investing – when one considers them from the perspective of the financial markets .
Investing is a process of allocating the resources, usually money, with the expectation of creating profit or an income.
Trading is the act of buying and selling a financial instrument within the same day or even multiple times over the course of a day or hold for less period of time. That may be the day or intraday trading or swing trading.
Investor is an individual that puts or hold money into an entity that may be a business for a financial return. Generally in share market Investor means hold his stock in for long period of time to gain his profit.
Trader is an individual who deals with the financial assets in any financial market for buying and selling. He trade may be either himself or on behalfs of others individual.
DIFFERENCE BETWEEN INVESTING & TRADING
The main difference between a TRADING and an INVESTING is the duration for which the person holds the asset.
In my blog, explained The Essentials of Trading & Investing. The motive of Both trading and investing, are to pursuit of profits. If I buy ABC stock I expect to either see the price appreciate or earn dividends or bonus or may be split of that stocks – perhaps all.
What separates trading from investing, however, is that generally in trading tried to gain more profit with less time period but in Investing is how long the position will be held. Means if the stock is up trend than the price will go high price after long interval of time. Either way, the trade is seen to have a finite life.
We can use instances or examples to help to elaborate the difference. we know the famous investor Warren Buffet. He buys companies shares which he sees as somehow undervalued and holds that share on to his positions for as long as he continues to like their prospects. He does not think in terms of a price at which he will exit the stock.
If one best trader, he buy famous company stocks and that price of the stock was going down for the some period of time than he immediately sell that stock to reduce his loss because he is a trader. Means generally we have to understand that the trader is gain his profit with in a minimum period of time but investor always hold his stock for long period of time to gain his profit.
With these definitions in mind, many people refer to as their single biggest investment – their home. Based our second definition of investing, however, a home is generally not an investment because home not produce any income. In fact, it produces considerable expenses in the form of interest payments, utility bills, and upkeep.
As noted earlier, Most of the people think trading and investing seem like the same thing. The mechanics of buying and selling are basically the same. But the duration of time period is different in both investing & trading.