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What is the difference between trading and investing?

What is the difference between trading and investing?

Trading or speculation and investment may be similar in the basic idea of   each of them, which is to risk money in excess of need or saved in order to achieve a return, but although both the investor and the trader seek to make a profit by trading in different financial markets, there is a difference Between investing and trading in the financial markets, each makes a different path.

The difference between the two can be summarized in that investing is using an amount of money to obtain a return from it for long periods of time, while trading in general aims to buy at a lower price and sell at a higher price in order to achieve profits in short periods of time. While the investor seeks to achieve greater returns by buying and keeping stocks and bonds for a long time in addition to the possibility of achieving returns without the need to sell the stock or bond, and that is from dividends, for example in shares or interest on bonds, and on the other hand, the trader benefits from the rise and fall of the markets by buying and Selling for a shorter period of time and making smaller, but more frequent profits.

It is possible to differentiate between trading and investing through 5 factors:

  1. Time range: Investors invest their money for relatively longer periods of time. The fluctuations or movements of prices in the market in the short term are not of great importance for a long-term investment, as opposed to a trader who is looking most of the time for short-term and frequent profits.

  2. The method of earning profits: the trader looks at the movement of stock prices in the market in both directions, up or down, and the trader can benefit from the rise or fall of the prices of stocks or various assets. While the investor searches for the cumulative profit by multiplying the interest and profits over several years by keeping high-quality stocks and assets in the market.

  3. Risk Ratio: Both trading and investing involve risks to capital, but trading contains a relatively higher risk ratio in exchange for higher returns due to daily market fluctuations and the low and rise of the price in a short period of time. While investing takes some time to develop and involves fewer immediate risks and returns compared to trading, it may yield higher returns by accumulating interest and profits if it is held for a longer period of time as it is not affected by daily market fluctuations.

  4. The minimum capital allocated: or the so-called initial balance to open an account, which is usually the money allocated for investment is greater than the amount allocated for trading, so we may see that stock brokerage firms may require accounts starting from $ 5,000 to start trading or investing in stocks, in When the Forex brokerage firms require a minimum amount to open an account of $ 200 only.

  5. The time allocated to the trading or investment process: We mean the time that the stores spend in following, analyzing, and selecting deals. Unlike investment, trading requires more follow-up time, perhaps not for long periods, but it is frequent despite its shortness due to the daily follow-up, which may be more than once during the day. It takes at least two hours a day from the time of the trader, as for long-term investment, it requires less time, which may be limited to a few hours a week or a month only, in the search for investments and the identification of appropriate opportunities that are compatible with the established strategy and perhaps a few minutes to follow up after that.
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