Difference Between Trading and Investing

What is Trading?

Trading refers to the dealing with bonds, i.e. agreements, futures, options, buying and selling of shares, debentures, etc., between merchants, for the intention of obtaining a profit.

In the stock exchange, the money is transferred by the purchaser to the seller, to transfer the stock, who give their consent on a specific cost price. For efficient dealing, the stock dealer must have a solid education of market aims and how it works.

The basic fundamental of trading is to buy when the price is low and sell when the price is high, but there are several other strategies such as reverse trading and short-selling, which only seasoned traders use to make high profits in the short term. Such strategies are risky and not recommended for beginners

What is Investing?

Investing can be defined as the method of placing down a definite aggregate of money, in a plan or scheme, project, to produce profit or income out of it in prospect.

Investing objects for gathering money, by saving it aside, to spend it on multiple investment avenues, in anticipation of gaining more money.

Investors are more concerned about the market fundamentals and not the upward or downward trends that change every day.

The market fundamentals such as Price to Earnings ratio (P/E Ratio) is the major interest for the investors in the long-term.

Difference Between Trading and Investing

The critical difference between investing and trading is the type of approach involved in both methods. In investing, the investor uses the fundamental analysis of the company, and in trading, it involves technical analysis.

Fundamental analysis involves the company’s financial analysis, previous financial records of the company, analysis of the industry on which the company is based, and the overall performance of the industry based on the macroeconomic situations in the country and the results.

Technical analysis is everyday financial trends such as the company’s performance in numbers based on the uptrends and downtrends in the market every day.

It requires the traders to study the company closely and every day as it makes financial decisions and reflects in the charts and numbers in the stock market.

This data helps the traders to make significant predictions of the changes and involves studying trends in volume, price, and moving averages.

Traders need to act dynamically and buy or sell based on the current trends while investors study the company closely, invest in it and hold it for a longer period to earn profit with lesser risk.

Comparison Table between Trading and Investing

Parameter of ComparisonTradingInvesting
DefinitionTrading refers to the trading of securities, i.e. bonds, buying and selling of shares, futures, options, debentures, etc., between merchants, for the intention of obtaining a profitInvesting refers to distributing money to either a project, policy, plan or a scheme which is capable of generating future returns.
TermShort to mediumMedium to long
ToolTechnical analysisFundamental analysis
Associated toDay to day market trend.Long term profitability
Risk involvedHigh.Low.
TaxationShort term capital gain.Subject to the investment is held for more than a year, though it is not taxable.