Investing vs. Trading: What's the Difference?

Investing vs. Trading: An Overview

Investing and trading are two different methods of attempting to profit in the financial markets. Both investors and traders seek profits through market participation. Investors generally seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits.

• Investing takes a long-term approach to the markets and often applies to such purposes as retirement accounts.
• Trading involves short-term strategies to maximize returns daily, monthly, or quarterly.
• Investors are more likely to ride out short-term losses, while traders will attempt to make transactions that can help them profit quickly from fluctuating markets.

Key Similarities

The goal for investing and trading is the same: to make money. Both investors and traders do this by opening accounts so they can easily buy and sell assets like stocks, bonds, and mutual funds among others.

Both investing and trading come with the possibility of risk and reward. After all, there are no guarantees in life, including the markets. Although the degree varies, every asset comes with the potential for loss the same way they promise big gains.

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Investors often enhance their profits by compounding or reinvesting any profits and dividends into additional shares of stock.