trading or investing

Trading or investing? Which one is more profitable?

deltafx writer 22 June 2021

By understanding trading or investing in financial markets and selecting the best option, People can achieve the best method to profit based on their budget. Trading is the regular buying and selling of assets to make more profit as a result of market fluctuations, while investing refers to the purchase and maintenance of assets for a long time, during which investors succeed in making a profit, and they can even reinvest in some other assets.

Let’s have a closer look at the cases to see more details.

Indeed all of you are familiar with the people who work in the stock market. Of course, there are many different ways to do these trading activities, but there are almost two main categories in this area: the trader (those who consider chart movements) and the investor (those who think about the principles of valuation over a long period of time).

The difference between a trader and an investigator

Before we talk about the different points of trading versus investment, let’s have a look at the two world-famous and influential people. George Soros and Warren Buffett have both made a fortune in different ways during their lives in the stock market.

On the one hand, Warren Buffett has a fortune of about 67 billion dollars, and he has become an influential person through long-term investments in companies he has owned shares for decades.

warren buffett 3

I will show you how to get rich: be greedy when others are afraid and afraid when others are greedy.

On the other hand, we see George Soros, with a net worth of $ 24.2 billion.

George Soros2 1

Markets are always in a state of uncertainty and volatility. However, money in this situation is obtained by ignoring the obvious and betting on unexpected events.

Let’s continue the discussion with an example:

Imagine you and your friend buy an equal amount of fruit seeds for planting. But since the market for this particular type of seed is hot, you decide to sell it and use the profits. However, your friend chose to plant seeds with a different approach and planted and collected seeds repeatedly over the years. In this example, George Soros sells the seeds, and Warren Buffett plants them. This is the difference between investing and trading.

Investment and trading features

Perhaps the difference between investing and trading can be summarized in the following points:

Timeframe

The first difference between these two strategies is the time period in which you keep them. If you hold your stock or asset for a short period of time and then sell it, you have made a trade, and if you hold your asset for years or decades, then it would be an investment. Trading in the financial market is very time-consuming compared to investing. If done correctly, you can live in peace for months or even years without buying and selling.

Trading risk

Both of these business activities will undoubtedly be risky. For trading, since the price goes up or down in a short period of time, the risk and the potential return will be higher, but the nature of the investment will bring lower risk and lower returns, and you should consider the fact that in the longer term, it can generate more profit with less risk.

Personality characteristics

Traders put their money in the stock market in a short period of time, intending to make more profit. For them, time is significantly important since the loss of just a few minutes can be devastating. They examine the current performance of companies to make more profit. But investors focus more on value than trends. They patiently monitor their assets to reach their potential goal, and ultimately, they would be successful people who achieved their financial goals. Different features of trading and investing make each of these methods suitable for a group of people.

Paul Samuelson expressed a beautiful sentence in this regard. “Investing is like waiting for paint to dry or the growth of grasses. So if you are looking for 800$ and more excitement, head to Las Vegas”, he said.

Making a long-term investment requires knowledge of the company’s financial statements, relative assessments such as P/E and PBV ratios. Although you will have the opportunity to make a quick profit from buying and selling assets, the risk involved in such activities is that you can lose more than the amount of money that you have. In addition, trading costs are often high because you have to pay a commission every time you trade your stock. At the same time, the costs of investment will be lower since you buy and sell your assets less frequently, although the return will also be lower.

Investment or trading? Which is more suitable?

You should know that both of these activities are correlated. Without the traders, the investors will not have any liquidity to buy and sell stocks, and without investors, traders will not have any capital to trade. If everyone were an investor, no one would be willing to buy or sell in the short term, and that would have a negative impact on the market; in fact, it is liquidity that balances market prices. Traders use market conditions to enter or exit quickly and try to make more profit with more risk, while investors try to buy and hold stocks for a more extended period of time and make more profit by lowering risk.

It doesn’t matter Whether you trade or invest; only keep in mind that you need to find a way that fits your personality traits, abilities and philosophies.

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