Trading or Investment: Which one to choose?

There are two ways to make money in the stock market: investing and trading. And while most ordinary people don't see any difference between the two, there is a huge difference between the actions of an investor and a trader.

Timing of investment

Investors do not chase immediate gains, they plan their investment horizon to last for at least a year, for the most patient - up to 20-30 years. At the same time, he plans to profit not only from asset growth over the long term but also from regular dividends and coupon payments.

The trader's main goal is to make a profit as quickly as possible. To do this, he aims to buy the asset cheaper and sell it as expensive as possible in the shortest possible time. It is not for nothing that a trader on the stock exchange is called a speculator; he earns on volatility, i.e. on price differences, and the period from buying to selling may vary from a few minutes to a few weeks.

Trading can be a much higher return in a short period of time than investing and can be a major source of income.

Choosing a strategy

Before making an investment in an asset, an investor carefully considers the history of the issuing company, how long and how regularly dividends are paid, and whether there are other fundamental factors that suggest the company is solid. Once an investor has purchased an asset from a well-researched company, they are not concerned about short-term fluctuations in the value of the securities and are completely relaxed about it, because they are focused and confident in the long-term returns.

A trader, when buying or selling a stock, relies on technical analysis at different time intervals, looking at price movements and seeking to identify patterns in order to anticipate the movement of quotations for future periods. A skilful trader takes into account the global economic situation and changes in the position of corporations, which often determine the volatility of stocks. This skill allows him to reduce the risks which are very high in trading.

Possible risks

Investments, as compared to trading, are considered safer investments because equity markets tend to rise over the long term. If you buy the safest securities, you can safely watch as they become more expensive over the years. 

Speculative trading is much riskier and there is always a possibility of a loss. One untimely or wrong decision can lead to huge losses.

Personal qualities

A prudent investor seeks to provide himself and his family with a comfortable future and a good passive income. In order to achieve this he creates an investment plan for the long term ahead, adheres to it carefully, and keeps track of income and expenses in order to build up initial investment capital. And then reinvests the dividends received, investing all the money saved into the business. Often starting with a small amount, the determined and persistent investor turns it into a large capital

Warren Buffet is the most famous and successful investor in the world. Valued at over $100 billion, he strikes some as the most boring person in the world. Yet everything he touches turns to gold. It is believed that it was Buffett who formulated the most successful strategy - "buy and hold", when investments are made for as long a time as possible.

Most traders are professional salaried employees and trade on behalf of and for the funds of their employers. They work for banks, pension funds, investment companies and so on. As a remuneration, they receive a percentage of profit. If a trader acts in his own interest, he is responsible for the result. 

In both cases, speculative stock trading requires instant reactions for proper decision-making and high-stress tolerance.

One of the great traders of our time is Bill Lipschutz. While still a student, he inherited from his grandmother a stock portfolio worth $12,000 which he quickly turned into $250,000. However, one small mistake cost him his entire fortune. More than once in his life there were moments when he lost every cent, but he kept taking risks and ended up with high profits from the trades. 

According to Lipshutz, it is not enough to have skills, work and persistence in trading. You also need excitement and a sincere love for what you do. A trader should never be discouraged, lose confidence, have doubts or be indecisive. It is confidence in one's abilities at the critical moment that helps to make the right decision.

Who makes more profit - the investor or the trader?

There is no definite answer to this question. Some people think that an experienced and successful trader can earn 1000%, while others believe that in the end, the investor who invests for the long term wins.

Everyone makes his or her own choice according to age, ability and personality. Every investor can turn into a trader, and vice versa. It is possible to play both roles at the same time, engaging in both investing and trading on the stock exchange.

The main thing is to know the basic safety rules, which are equally important to both investors and traders:

• Allocate your money to different assets. Even if one of them falls, the others are likely to stay afloat.
• Remain calm in any situation.
• Don't get greedy or try to make all the money in the world. Chasing big profits can mean losing everything.
• Watch your stops and do not trade against the momentum.