One of the most common questions people tend to ask me is: which is a better option between Trading VS Investing? Is there a right answer? I don’t think so. They are both great options, but the two have some differences. That’s why I wrote this article, to help you identify their main aspects and which option will be better for you!
Like financial trading, investing can also be a profitable way of using money. Both depend on how well informed you are about finance and the experience you have. So, keep in mind after reading this article that any option you choose, you can get more money just if you decide to be professional and responsible about it.
Keep reading and learn more about trading, investing, the main differences, and more! In the end, you will find out which option to choose.
What is Trading?
Trading is an activity that involves the buying, selling, or exchanging of securities in the financial markets. You can do trading with stocks, cryptocurrencies, futures, or foreign exchange, to name a few. The objective is to reach profitability thanks to the price variations of the securities.
I like to divide traders into two types: the amateur and the professional. Both aim to earn money, but the amateur does it as a side activity, while the professional lives by doing trading. Take this into consideration if you are already interested in trading.
Another way of settling differences between traders is the style they use for operating the market, such as:
- Swing trader: the objective of this style is to seek selling or buying opportunities in the large price movements of a security.
- Scalping trader: the goal is to obtain small profits in small short periods.
- Position trader: it aims to profit by identifying trends in the price of securities.
- Day trader: is the one that sells and buys securities within a day.
What is Investing?
Investing involves putting capital into a financial instrument expecting to make a profit over an extended time. You can make investments in stocks, mutual funds, and bonds, for example.
There are two main types of investors:
- Active investor: this is the one that aims to actively buy and sell financial assets to make a profit from the movements of prices in the financial markets.
- Passive investor: this type does not participate so actively in the financial markets. His approach consists in making long-term investments in funds and expect the growth of the capital over time.
Key Differences Between Trading and Investing
By learning the definitions maybe you identify some differences between trading and investing. But the following list will help you a lot:
Timeframe
Trading is considered short-term, and investing is medium to long-term.
For example, operating the financial markets in trading involves seeking buying and selling opportunities day-to-day. While investing requires finding an instrument or stock and letting the price grow slowly over time.
Profits
In trading, you obtain profit by selling and buying securities, taking advantage of the rising and falling of their prices. Meanwhile, in investing you profit just by the increase in prices of the securities; or from the income generated by the financial instrument you are investing.
Financial market and financial assets
Financial trading usually involves operating the futures market, Forex, or cryptocurrencies because of the volatility of these markets; this helps in the seek of profit operating every day.
In investing, you look more for stable financial assets with less volatility, like stocks.
Analysis
If you are trading, you should use technical analysis, and for investing it is more convenient to use fundamental analysis.
Time commitment
The trading activity is more demanding because it is more dedicated to seeking profit in the short term, so, you have to operate in the market mainly some hours a day, every day. Since investing seeks long-term benefits, it requires less time because you don’t have to put much time supervising the progress of your financial assets.
Risks
Trading and investing have similar risks; some depend on external aspects like economics and politics, but trading mainly will depend on volatility in the prices of securities; and investing on the market has risks such as interest rates, commodity prices, or exchange rates.
Benefits of Trading
- You can work from anywhere in the world.
- You can achieve financial freedom.
- You can choose how many hours to work.
- You can make a living.
- You have your own business.
- You can profit in the short term.
Benefits of Investing
- You can secure a better future for your retirement.
- You can outperform inflation.
- Your money works for you.
- You have a steady growth of your capital.
When to Trade, and When to Invest?
Take time as your principal factor. Remember that trading is considered short-term and investing long-term. If you want to make a living, trading can be the best option for you; if you desire to have a stable salary in the future, investing in order to have a retirement fund will be the right option.
Also, if you want to be involved actively in one of these activities, you should consider how much available time you have. To be a professional trader, you need to be committed and dedicated to learning, and, of course, have time to operate the market. But take into account that you could live just by trading, and investing is more a way of securing the value of your money over time.
Trading VS Investing: Which is More Profitable?
The profitability will depend on the trader and the investor. Everyone is different, and they can use a great number of instruments and strategies to make money.
It is almost impossible to compare them in terms of profitability. Please keep in mind that it will depend on your knowledge and expertise in whatever method you choose. Both are great, and both have risks, so always aim to take the least risk possible and maximize your profit.
How to Get Started in Trading or Investing?
It is essential to begin learning about the basic concepts of finance to start trading or investing. Then you will need to find out which is better according to your situation.
Trading is a good option for people who want to have their own business and work from anywhere around the world; this will be achievable if you become a professional trader. At MDC Trading Academy we are dedicated to developing professional trading careers. Be part of our free Basic Trading Course and start learning about the financial markets and how to operate in them!
I’ll be so happy to see you in the course and to teach you the basics so you can start your exciting trading career!
FAQ
Trading VS Investing: Which is Better?
It is not possible to define if trading is better than investing, or vice versa. It will depend on the time you are willing to dedicate to each activity, the time frame, and the financial instruments. You are the only person who can choose to do one or the other, or maybe both. Take into consideration your capital available (the one you can risk losing without compromising your financial health), and your financial goals.
Is Investing Riskier than Trading?
There are many variables to consider to be able to answer this question. It depends on the financial instrument, the type of investor, the style of trading, the amount of capital, the time frame, and the investing strategy or trading strategy. All of them will be different for each trader or investor.
Can you be Both? a Trader and Investor?
Yes! If you have enough capital, there is no need to choose one over the other. It is a better strategy to complement both options in your financial plan.
Dany Perez
Senior Trader with more than 10 years experience trading NYSE stocks and 5 years in the Futures Markets. An Andrés Bello National University alumni with an MBA from the University of Los Andes, Bogota, Dany has more than 15 years of experience working with multinational companies in the areas of financial planning and strategy. Dany also spent 6 years as an entrepreneur in his own endeavors and now he is a motivator and teacher and has worked with over 400 traders of different countries.