Nowadays, more and more people are looking to get into trading and investing instead of sticking their money in the bank. However, if you haven’t done either before, you may not know the key differences and which is best for you.
If you want to trade forex, buy some stocks, or invest in an exciting cryptocurrency coin, here are the differences between trading and investing that you need to remember.
What is Trading?
Trading is fairly self-explanatory; what can cause confusion for new investors is what exactly can you trade? In simple terms, trading is buying an asset, waiting for it to appreciate, and then selling it off shortly after.
Forex and crypto are two of the most popular investment types that people will trade, as their values fluctuate throughout the day, and therefore a profit can be made at almost any time.
What is Investing?
On the other hand, investing is a long-term option that doesn’t require daily attention or trading. An investment would be buying a stock or, surprisingly, a crypto coin and leaving it for weeks or even years.
You aim for small but consistent growth over a very long period and then sell off and collect your profit a couple of decades later.
If you are looking for short-term growth and profit, then the best option for you is trading. Forex is currency trading, and traders watch the small fluctuations throughout the day and buy and sell currencies depending on these movements.
Trading requires a lot more attention and a set of trading skills to do correctly, as your profits are minimal, but you earn dozens of them a day. You need to be able to spot patterns, know when to buy and sell and know how and when a currency will move.
The biggest long-term benefit belongs to investing. When you invest, you start with something that is often not that valuable, but it grows over many years. An investment may only see 4 or 5% growth a year, but that growth is enormous over 20 or even 30 years. This applies across the board, too, from stocks to long-hold cryptocurrency.
You also don’t have to pay much attention to your investments or know a lot about strategy. Investing is an option usually chosen by beginners as you just need to know what to buy, not how to trade it, read graphs, understand patterns, etc.
Another key difference between investing and trading is the use of strategy. While there are investing strategies, you can keep it simple by buying a stock or crypto coin and just leaving it. On the other hand, there are multiple trading strategies to choose from.
While strategies vary in complexity, it is essential to note that they all require a level of knowledge and technical ability, as you can’t wing being a trader. You need to do more research, stay on top of market shifts, be aware of changes in economies, etc.
Regarding risk, there is only one question you need to ask; how much exposure are you willing to take? Neither trading nor investing is bulletproof, as you can’t predict what the markets will look like at the end of the day, let alone in 6 months or a year.
Therefore, as mentioned, the risk factor is up to you. All investment and trading options come with risk, but you are able to control the exposure to some degree. You can educate yourself more, not get too greedy, know when to stop, etc. All of these factors can minimise risk no matter which option you choose.
The final question you may have is, how much will each of these options cost me? Once again, this can vary and is almost entirely up to you. Investing is a bit easier to calculate, as if you want ten £5 stocks, it will cost you £50.
Trading, on the other hand, can vary a lot. What most traders do is set themselves a budget and a goal for each day. This not only gives your trading purpose but will also stop you from getting too deep. The main objective of both trading and investing is to make a consistent profit, not spend as much as possible to get there.