Stock trading refers to selling and purchasing stocks for a short-term profit by focusing on the share prices or its derivatives. Investing refers only to purchasing stocks for longer lasting gains. Both stock trading as well investing are associated with profit-making in the stock market. But, their way of pursuing that profit differs a lot from one another.
The stock traders are never at a pause. They constantly get in and out of the stocks within minutes to days to weeks. Every second, they are aiming for short-term benefits. Their focus lies on the technical factors of stock instead of putting it on any company’s long-term plan aka fundamental factors.
To traders, two things matter a lot- a) the direction in which the stock may move further, and b) how can the trader make maximum benefit out of it.
Investors, on the other hand, look forward to long-term profit-making. They buy the stocks at yearly intervals. So, they often hold on to the stocks throughout the ups and downs of the stock market.
In this article, you will be acknowledged with the main difference between stock trading and investment followed by their pros and cons respectively.
Main Difference Between Stock Trading and Investment
Time is the ultimate variation lying between traders and investors. However, as discussed above, their way of making stick profit also differs dramatically.
Investors go through the detailed potential of any company in terms of long-term value or growth. Whereas, traders make use of the smaller stocks and their mispricing, buy the same and make their part of profit. For instance, any political dispute in a foreign nation declines the share price in the stock market temporarily.
The so-called traders may get a good scalp for the first few minutes and then go down the next minute. Day traders pay attention to the particular trading day trading. Whereas, the swing traders invest in the stocks for several days to weeks.
Pros and Cons of Stock Trading
Pros of Trading Stocks:
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Easy and convenient
Perfect timing is the key to fruitful stock trading. So, as a stockholder, it will be beneficial for you to be prompt in managing your online trading portals.
Via online trade, you can carry out a direct trade deal. The time required by conventional trading transactions is not so effective. This will ultimately end up costing you a huge amount of money.
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Good Returns
The ultimate objective of the people who look forward to online trading is to resign from the job and make a living out of stock trade. The returns lie at the stake of your risk taking ability. For example, how much funding can you afford to pay, or how many of your purchased stocks are beneficial. Roughly, you can make about 18-30% of good returns per year if played with intelligence and strategy.
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Derivatives Don’t Require Capital
Derivatives refer to the monetary agreements whose value rises from a primary asset. These include indices, currencies and shares, commodities, interest rate or exchange rates. All these monetary tools guide you to create by bringing on the future expenditures of primary assets.
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Liquidity
Liquidity of the financial tool or share market relates to how frequently the trade is made. The markets responsible for liquidity are the liquidity pools. Liquidity reduces the risk of loss in share price. Plus, it provides a newer opportunity to buy or sell the stock at a certain rate for every individual.
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Price discovery
Price discovery indicates the way of finding the absolute price of a commodity, its security, and goods and services by knowing all about market resources, its demands along with other related factors of dealings. Also, appropriate pricing discovery is associated with size, quantity, location, and seller-buyer competitions followed by their respective actions.
Cons of Trading Stock:
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Easy Losses
People often think that stock trading is the easiest way to make larger profit within a shorter time. However, that is not the case exactly. Though it is easier to make quick profits, it is also subjected to heavy risks of losing money at one flash.
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High tax liability
A tax liability refers to the amount of taxation a person or company has to pay based on current tax rules. Any tax based event activates the calculation of tax liability. Tax liabilities occur from larger financial profits, profit of the asset earned from an auction, and other taxable measures.
Pros and Cons of Stock Investment
Pros of Investing in Stocks:
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You Can Make Huge Profit
The ultimate attraction of getting into the stock market is the amount of profit that you make on your investment, within a short time. Google, Apple, etc. are some of the instances which initially began with little investment, then grew up to make incredible sum of profits. However, you must remember that to make this much money, you might require to take significant risks on your investment.
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Exceptional Liquidity
Unlike real estate or other similar investments, investors can access their financial share in the share market. It will take only seconds to sell or buy a better share, and trade further when the market condition is suitable.
Cons of Investing in Stocks:
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Volatile Stock Market
There will be obvious victories and losses among the investors in the stock market. If you win the stock price, then it is all fine. But, if you lose the game, be ready to give away a significant part of your investment with zero profit in hand.
To stay longer in the stock market, you must plan your investment strategically. Else, you will end up in losses during the financial swings of the stock market.
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Stock Market Breakdown
Volatility is the ultimate nature of the stock market. So, ups and downs in the share price is inevitable, which normally doesn’t occur so often. However, if it does, then investors go through huge, uncertain loss. Besides, it takes years to restore the condition of the share market.
Let’s Sum It Up
If you are an expert and well-experienced in the field of stock trading, your profit will be much more than your investment. Plus, day trading has greater potential of making bigger money. This will let you choose the better stock among many, for your daily day trade. The case is similarly applicable for the investors as well. So, your expertise of choosing the right stock at the right time is the ultimate KEY to maximum profit, irrespective of stock trading or investment.
