Last Updated on 17 November, 2020 by Samuelsson
Is trading better than investing? These two terms may seem quite similar to you if you’re just starting out, but there are major differences between them. Before you officially enter the market, research can help you get a clear idea of these two concepts and you can choose accordingly.
Trading is better than investing when you are looking to gain profit quickly. However, trading also comes with a high degree of risk and is less recommended to people with little experience in the financial area. So you should carefully consider your objectives in order to choose the best way for you to move forward.
For a newcomer to the markets, many questions may arise before they could come to a conclusion as to whether they should trade or take the investment route. To make your way through the financial market easier at the beginning, we have covered some of the main aspects of the two in this article.
What is the Difference between Investing and Trading?
Investing and trading are both tools used in the financial market that help the investors make profit and achieve their financial goals. However, major differences include the timeline in which you gain the fortune and the degree of risk involved in each of the two options.
Investing is about building your wealth gradually over time through buying stocks, bonds, mutual funds, etc. and holding them. On the other hand, trading is about transacting frequently like buying stocks, currency pairs, commodities, etc. and selling them for a profit. Here your goal is to get returns which outperform the buy-and-hold investing.
Which Is Easier To Learn?
On the financial market, there is no simple way to gain profit fast and easy. However, some tools are easier to learn than others. Investing may be simpler to understand for some people, being a financial strategy focussing on buying stocks and keeping them for a long time.
However, while active investing is not easy, trading is even harder. Investors could essentially buy an index fund and get nice, stable returns, while a trader will have to spend a lot of time to come up with trading systems to trade. Even then, there is a lot of work left for traders, whereas a long term investor might relax and just wait for his or her account increase in value.
It still is important to remember that there are many different forms of investing and trading. Some are easier than others, but generally speaking, trading will be harder to learn!
What Types Of Trading Are There?
Trading has developed multiple forms over time and now retail traders have more options to choose from than what might have been the case some 15-20 years back. Let’s explore these options in a bit more detail.
The Different Types of Investing Vehicles
Investing also comes in different forms, so there are multiple options if you are interested in making investments. Here we have listed a few of them for you.
How to Choose Between Trading and Investing?
Choosing between the two financial tools may not be an obvious choice, especially if you are just beginning to invest in the financial market. While you can choose multiple types of investments to get you started, the best way to gain appropriate exposure is to find an answer to the following questions first:
- Do long term or short term holding periods resonate better with me?
- Do I enjoy making active trading decisions all the time, or do I want to invest and make changes to my portfolio maybe once a year?
- How much time do I have for this in my life?
If you feel you are focused on short-term action, learn more in the trading domain. Find a mentor or do more research online and in your local field. If, on the contrary, you feel a long-term strategy is more suitable for your goals, then you should choose to learn more about investing. Either way, you need someone to teach you the first steps and show you around the financial market. Trading NEVER is a quick way of achieving results, but with some experience, you will have the chance of making good money.
Your success is never guaranteed, but you will raise the odds of becoming a consistent winner if you start off with an objective list, a budget and a very clear image of what you need and what you expect from the market right now. This way, you can minimize the risks and choose the right path for you as an investor or trader.
If you enjoyed this article you might also like our other articles answering common questions traders have!