Trading vs Investing. are two very different methods of attempting to profit in the Philippine Stock Market. Both investors and traders seek profits through market participation. In general, investors 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.
Trading involves more frequent transactions, such as the buying and selling of stocks. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with annual returns of 10% to 15%, traders might seek a 10% return each month. Trading profits are generated by buying at a lower price and selling at a higher price within a relatively short period of time.
While buy-and-hold investors wait out less profitable positions, traders seek to make profits within a specified period of time and often use a protective stop-loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.
A trader’s style refers to the time-frame or holding period in which stocks, commodities, or other trading instruments are bought and sold. Traders generally fall into one of four categories:
Position Trader: Positions are held from months to years.
Swing Trader: Positions are held from days to weeks.
Day Trader: Positions are held throughout the day only with no overnight positions.
Scalp Trader: Positions are held for seconds to minutes with no overnight positions.
Traders often choose their trading style based on factors including account size, amount of time that can be dedicated to trading, level of trading experience, personality, and risk tolerance.
While stock trading especially Day trading sounds cool, this is not an easy task, I see a lot of people jumping into day trading without any background or training with the Financial Markets end up losing a lot of money. An experienced trader also loses money in the market imagine a newbie trader with no training. I’m not saying it’s impossible to be a day trader but it’s it takes a tons of work and capital.
How to be a Successful Trader: Link Link
The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of stocks or baskets of stocks. Investments often are held for a period of years, or even decades, taking advantage of perks like interest, dividends, and stock splits along the way. While markets inevitably fluctuate, investors will “ride out” the downtrends with the expectation that prices will rebound and any losses eventually will be recovered. Investors typically are more concerned with market fundamentals, such as price-to-earnings ratios and management forecasts.
Investors often enhance their profits through compounding or reinvesting any profits and dividends into additional shares of stock. Let’s take the word of history’s most successful investor:
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.”– Warren Buffett
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” – Warren Buffett
That is the heart of investing, you are not only growing your money over time, you are also helping the company to grow.
Would it be a great feeling if one day you are eating at Jollibee and you own a Jollibee Foods Corp(JFC) stock or you are at an SM Mall and you own SM Prime Holdings(SMPH) Inc or SM Investments Corp(SM)? Essentially you are a part-owner of that Company!
Investing is a way to build long-term wealth. Just ask anyone who bought stocks in March 2009 — the Standard & Poor’s 500 index is up about 250% since then. Dozens of studies show investing in the stock market can return millions more retirement money than putting money in a traditional savings account or keeping it in cash.
How to be a Successful Investor: Rules on Stock Investing
Some might consider their trading activities as investing, for me, the difference between trading and investing has more to do with time.
When you invest in something, you are looking to grow your money. Some people invest for a long time, such as for retirement, while others invest for a short time to hit a specific goal, such as buying a car. A person who owns an annuity, for instance, is investing for a longer time horizon than someone who enjoys trading stocks and moves their money around quite frequently.
Trading, on the other hand, suggests the investor is taking a very short-term approach and is principally concerned with either making quick cash or the thrill of participating in the markets.
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