7 Differences between Trading and Investing for You to Know

Trading and investing are two profitable activities, but they work differently. So that you don't practice it wrong, you must know the difference between trading and investing.

You can easily distinguish between trading and investment activities. You just have to choose the right investment instrument, which represents each of these activities directly. Come on, listen to the explanation.

Equally Profitable, These are 7 Differences in Trading and Investing

Trading vs investing is often thought to be similar, even though the practice is different. Trading can be said to be part of investing, but investing is not exactly said to be trading. So that you understand better, here is the difference between investing and trading.

#1. Difference in timeframe

Investing and trading can be immediately distinguished by the duration of their activity. For example, in stock investing, it can be said to be an investment when you do it for a period of more than 5 years or even up to 10 years.

Meanwhile, stock trading is carried out shorter than that, which is a maximum of 1 year.

In conclusion, it takes longer to invest than to trade. The goal alone is different, those of you who want to take profits in the future are the best at choosing investments, but if you want faster profits, it is most appropriate to trade.

#2. The difference in profit potential

The amount of profit between trading and investment is also different. Because it is done for a long time, the return on investment can be much greater. There is no benchmark for what the percentage is because the asset is always growing.

Meanwhile, trading profits are not as big as investment because they follow market fluctuations at that time. Moreover, trading is very dependent on the rise and fall of asset prices such as stocks when the capital market is open.

#3. Differences in the way of work

The way of working between trading and investing is also different. For example, to trade stocks, the way it works is you buy and sell stocks.

As for stock investment, you buy shares and then save them for several years to get regular returns. You can sell it again when the price is high. You also get a big profit.

#4. Differences in the use of analysis

Both have differences in the use of analysis to help asset performance. In concept trading, you need technical analysis to make the right decision. The trick is to use a graph of changes in asset prices that go up and down. This analysis helps predict whether the price of an asset will increase or decrease.

Meanwhile, in investing, you use fundamental analysis. You analyze an asset through the company whether it is healthy or otherwise. This can be known from the financial statements that you assess yourself. For this reason, you need to understand the various terms in financial reports.

#5. Different levels of risk

The level of risk between trading and investing is also different. Trading usually has a higher level of risk because asset prices are always changing from rising to falling drastically. It also makes you lose capital.

Meanwhile, the level of investment risk is also high because liquidation or bankruptcy of the company may occur. However, you can take back capital that will be considered debt by the company, so your capital will return.

#6. Different types of returns

The types of returns obtained from trading and investing are also different. For trading, you will get capital gains that come from increasing asset prices. The formula for the selling price must be higher than the purchase price.

Meanwhile, when you decide to invest, you will receive dividends, which are returns from company profits that are distributed to all investors. Dividends should ideally be distributed once a year. You are like getting passive income.

#7. Differences in strategy

Strategies for trading and investing are also different. In trading you need to buy assets that are cheap, but have the potential to go up in a fast time. You should pay close attention to asset price movements.

Meanwhile, in investing, your strategy is to choose assets whose intrinsic value is far higher than the current price. You need to use the formula for how to calculate intrinsic value to find out.

Conclusion

The difference between trading and investment can be seen from various aspects. You can choose one of the two according to your financial goals. If done correctly, trading and investing both have the potential for very productive returns.