Trading involves holding stocks for short period of time. Traders make use of short term market fluctuations to earn profits. The trading period can be very short, sometimes even less than a minute. A trader usually aims to 10% to 15% return each month. By studying the market trends and through Technical analysis tools, one can get returns in the market and form strategies to buy and sell at the most profitable times. Traders use protective stop-loss orders to limit losses by closing losing positions at pre-decided prices.
Investment, on the other hand, involves holding of investment instruments and building wealth over a long period of time. An investor looks forward to growth and good performance of the company in order to reap profits in the form of dividends. He also reinvests the dividends in stocks to increase his investments. Investments are made for longer periods of time and may span decades. A sound investment policy can return a benefit of 15-20% annually. “Buy and Hold” strategy is followed by investors and the risk is generally low. The downtrends in the market are expected to “ride out” over longer periods of time and the prices are expected to rebound and losses are expected to be eventually recovered.
Deciding Between Investment and Trading
Time is the factor to be considered when deciding between trading and investing. If you have the time to study charts and graphs on daily basis, then opt for trading. If you have no time and inclination for such a thing, you can opt for investing.
The amount you want to invest also plays a part in deciding between the two options. A small investor, who wants to grow his portfolio with minimum risks, should look for long term investments. If you are a large investor and are willing to take a larger risk, you can opt for short trend trading.