Investing (v/s) Trading!
Investing vs Trading:
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Investing and trading are two very different methods of attempting to profit in the financial markets.
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 timeframe, 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.
The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds, and other investment instruments.
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.
Anyone who has a 401(k) or an IRA is investing, even if they are not tracking the performance of their holdings on a daily basis.
Since the goal is to grow a retirement account over the course of decades, the day-to-day fluctuations of different mutual funds are less important than consistent growth over an extended period.
Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments.
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.
The reverse also is true: trading profits can be made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets.
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 timeframe 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.
***What Are Financial Markets?
Financial markets refer broadly to any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market, among others.
Financial markets are vital to the smooth operation of capitalist economies.
***What Are Currency Pairs?
Currency pairs are the national currencies from two countries coupled for trading on the foreign exchange (FX) marketplace.
Both currencies will have exchange rates on which the trade will have its position basis.
All trading within the forex market, whether selling, buying, or trading, will take place through currency pairs.
***What Is Short Selling?
Short selling is an investment or trading strategy that speculates on the decline in a stock or other security's price.
It is an advanced strategy that should only be undertaken by experienced traders and investors.
Traders may use short selling as speculation, and investors or portfolio managers may use it as a hedge against the downside risk of a long position in the same security or a related one.
Speculation carries the possibility of substantial risk and is an advanced trading method.
Hedging is a more common transaction involving placing an offsetting position to reduce risk exposure.
In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value.
The investor then sells these borrowed shares to buyers willing to pay the market price.
Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost.
The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity.
Short selling occurs when an investor borrows a security and sells it on the open market, planning to buy it back later for less money.
Short sellers bet on, and profit from, a drop in a security's price. This can be contrasted with long investors who want the price to go up.
Short selling has a high risk/reward ratio: It can offer big profits, but losses can mount quickly and infinitely due to margin calls.