While seemingly similar, investing and trading actually differ in many ways. Both investing and trading are a utility to grow money you have; however, one is much less involved than the other.
The primary concept behind investing is to put a certain amount of money away with the intention of it growing over time. Most investments do not require much upkeep and for the most part, are relatively low volatility. Investments are most commonly found in the form of property, bonds, art, and jewelry. The most important form of investment, which the majority of Americans should have, is a retirement fund. Retirement funds offer you an opportunity to invest money with very low risk; however, they do not provide much return. This is very common for most investments. You can pretty much count on appreciation from the principal value of your investment, but most of the time the return will be dismal compared to something riskier such as trading. In any form of investment, it’s crucial to remember that the greater the potential upside, the larger the potential downside.
Trading, similar to investing, is a much more lucrative way to see a return on your money. Mostly anyone who has disposable income is capable of investing, this is not the same case for trading. When people talk about day trading or actively trading, they are referencing an individual who regularly moves money around in the stock market whether that be in indices, ETFs, or stocks. Traders are constantly looking at trends, when and how much people are buying and selling, and nearly every second, filing for a specific stock. The only limit to how much money you can make is how much your willing to lose. While trading is much more lucrative than investing, it’s also much easier to lose money. You will not be right with every play, and at some point, you will lose money. There are many tips and tricks you can do to mitigate the risk of losing money, but you will never eliminate the risk completely. Since trading revolves around the market, the majority of it is speculation-based and incredibly volatile. If you have a strong level of stress tolerance and the ability to not care about losing money then trading is a great opportunity for you to make money. However, if you’re like the rest of us, and would rather hold on to your money and see a slight return, investing is best suited for you.
We hope this clearly outlines the differences between investing and trading. Both are wonderful ways to reap returns on your money, it’s all about figuring out what methodology best fits you.
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