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Investing vs Trading in Stock Market: Key Differences

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 companyDoesn’t bother about company or its business, looks only at charts
Earns from Buying onlyEarns money both from buying and selling.
Likes Bull MarketLikes both Bear and Bull Market
Has to pay full amount in cash to buy stocksCan use margin provided by broker to buy more with less money
Takes delivery of shares into demat accountMay or may not take delivery of shares (Intraday)
Does Fundamental AnalysisDoes Technical Analysis
Usually doesn’t keep stop lossKeeps strict stop loss
Doesn’t care about daily price movementTracks every movement of the market and traded stocks
Less StressfulCan be very stressful
Comparitively less riskyVery risky, especially for traders with less market experience
More people are successful at investing, many success storiesLess than 1% are successful full-time traders

More detailed article coming up!

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