It’s very important for those who enter the stock market to understand the key differences between Investing and Trading.
A lot of people enter the market to ‘invest’, but very few hold their stocks even for a year – forget about 5-10-15 years, which is the time it really takes to create significant wealth.
Most people buy a few random companies that have recently been in news. When the stock price goes up, they sell at 10-20% gains.
It’s only when the stock price crashes that most people become ‘long term investors’ – not because they want to, but because they just want to recover their lost money.
The mindset of an investor is completely different from a trader and those with a short-term trading mindset, can never become successful at investing. It’s usually the broker who keeps getting richer, until the investors goes broke.
A quick comparison to help you understand the basic differences between investing and trading.
|Thinks Long Term (5 to 10 years or more)||Thinks Short Term (Few minutes to few months)|
|Believes buying a stock is part-ownership of company||Doesn’t bother about company or its business, looks only at charts|
|Earns from Buying only||Earns money both from buying and selling.|
|Likes Bull Market||Likes both Bear and Bull Market|
|Has to pay full amount in cash to buy stocks||Can use margin provided by broker to buy more with less money|
|Takes delivery of shares into demat account||May or may not take delivery of shares (Intraday)|
|Does Fundamental Analysis||Does Technical Analysis|
|Usually doesn’t keep stop loss||Keeps strict stop loss|
|Doesn’t care about daily price movement||Tracks every movement of the market and traded stocks|
|Less Stressful||Can be very stressful|
|Comparitively less risky||Very risky, especially for traders with less market experience|
|More people are successful at investing, many success stories||Less than 1% are successful full-time traders|
More detailed article coming up!