Stock trading vs stock investing: Which is suitable for you?

The stock market is a place to make profits – this is no longer a mystery. But there are several ways to actually get rich from stocks.

Some do trading, while some choose investing. Some think they are investing but are, in fact, trading.

In some ways, the two are similar, but there are a few differences you should be aware of before you choose to adopt either one.

So, which is suitable for you: trading or investing?

Is stock trading for you?

Online stock trading can be considered the more active strategy, as it involves more frequent transactions.

Traders, or those who do stock trading, buy and sell stocks off the markets based on technical indicators. These are the people who regularly monitor the share prices, jump at the slightest changes on the candlestick charts, and like fast-paced profit-making. You would’ve seen the stereotypical trader in most Hollywood movies about the banking and finance industry.

See also: The Basics of Options Trading for Beginners

Suffice it to say that traders do not usually concern themselves over the fundamentals of a business or a stock that they buy and sell. Rather, they are more concerned about price fluctuations and market psychology.

When they see the first opportunity to buy or sell, they take immediate action with the goal to make profits. For example, traders would eagerly jump at the news of a political turmoil or a change in leadership, as such would often indicate a price swing. And don’t get us wrong, traders can make money from this strategy.

See also: Finding the Best Stocks to Buy

One important consideration in doing stock trading, however, is the tax. Make sure you understand how the tax deductions work since you’ll be doing regular transactions.

Is stock investing more suitable for you?

What primarily differentiates stock investing and stock trading is the strategy. While trading is more of assessing technical indicators, investing is about looking at the fundamentals and assessing whether a stock has the potential to give you profits in the long term.

One of the world’s richest men, Warren Buffett, is a well-known stock investor, along with billionaires like Charlie Munger and Sir John Templeton. These are people who made billions by investing their money into great businesses and letting them grow for a period of years or sometimes decades, rather than moving in and out of stock positions every day.

Stock investors put their money into good companies and let them grow. It’s like the process of making wine – a long and slow process that takes several years. As time goes by, the taste gets better. But it’s not a passive process.

To create the best wine, you must select the best grapes and the best environment to let the vineyard flourish. Then you must invest time and knowledge in growing, harvesting, fermenting, and bottling it.

The same is the case for investing. You would want to build your wealth gradually through compounding interest; hence, you meticulously choose which stocks to invest in.

Trading, on the other hand, is more like enjoying the grapes as they are and choosing which to pick and ignore based on how the fruits look.

There is still work to be done for stock investing. Investors typically spend effort on analysing businesses before actually putting their money in. However, once this is done, investors do not need to look at the stock market every single day; in fact, the less you look at it, the better your results may be.

A well-known adage for investing is to go into stocks that you’d be “sleeping on” for years to come, rather than worrying about ups and downs that occur daily.

To learn more about stock investing, come to our free online masterclass where we teach you the best strategies to profit from the stock market.