Difference Between Investing And Trading
Many of us have worked so hard to accumulate assets, but we may use only a few of the options. We should be able to make money works for us and we can achieve this by utilizing any opportunity available in the market. This way, it is quite possible for us to receive an immense amount of passive income that will be available although we stop working. Investing is intended to achieve much higher results and it is aimed to enhance our wealth. This should be a fairly easy concept to grasp for new investor.
However, conditions may change easily, because markets always fluctuate. Nothing stays the same. Gold prices, stock market, property valuations and many others go up forever. We should look deeper into investment opportunities and understand how each financial instrument and product can help us achieve goals in the market consistently.
We need to achieve huge returns, while managing risks. Risks should be controlled and it is usually a function of how much return we can get from an investment option.
However, there are differences between investing and trading. One fundamental difference is that investing is intended for long-term purposes. We may gain returns after a few months, a few years or even a few decades. On the other hand, trading is more about short-term gains. They may earn us less profit, but we can repeat it more often.
Often, trading offers much higher profit than investing when seen for specific duration of time. Investors should be concerned with the long term appreciation, because this means true profit. On the other hand, traders will prefer short-term price fluctuations that can benefit them within days or even hours.
There are four categories of investment options:
1. Cash and its equivalents, such as spot forex and bank deposits
2. Stocks: It also includes equities and other asset-based stocks, including Options, ETFs, Unit Trusts and CFDs.
3. Properties and specific tangible assets, including fine wine, art and commodities
4. Bonds and specific fixed-income assets
In general, traders can gain an immense amount of profit through different types of exchange-traded financial products that are sold publicly. These products should be listed in the national exchange. They must meet strict listing and legal criteria. Traders see them as proper products for trading activities, while investors consider them as highly-liquid investments.
People who prefer to trade should deal with most shares and stocks, ETFs, most commodities, most government bods and some types of unit trusts. In general, their price should fluctuate relatively rapidly and can be purchased or sold immediately.
On the other hand, investors may choose financial products issued by banks and investment companies. These products exchange hand through bilateral, more private agreements between two parties. Compared to exchange-traded products, these investment options are far less regulated. They don’t always liquid and traders don’t see them as appropriate trading products. People who prefer to invest can choose most unit trusts, CFDs, municipal bonds, some stocks and some commodities.