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.
Investor | Trader |
|---|---|
| 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!
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