Many people may think that the terms “investment” and “trading” are the same and do not differ much between them. But in fact these two terms are very different from each other. To begin with, let us define each of these two terms separately and finally make a comparison between them.
Who is the investor?
Investor means bringing capital into an economic activity. This economic activity can be various cases such as construction of factories, stock exchanges, economic projects or any other case. In general, the investment period is long-term. Because we have to wait to develop the conditions to achieve the desired investment goals. For example, an investor who invests in a factory must wait for the factory to start up and then, depending on the type of contract, have a financial operation for his investment.
For another example, one type of investment is investing in the stock market. People who invest in the stock market in any way must have a long-term vision, which can even be several years. They are based on a fundamental analysis after examining the status of companies, property, inflation, type of industry and…. They invest.
Hence, they do not pay much attention to fluctuations. It is possible that in a few days, a few percent of the value of the stock will fall, but given that the value of the stock remains stable, it does not make much difference to the investor.
Who is the trader?
Basically, the definition of trading is the long and short of assets with a short-term perspective in order to profit from fluctuations. This short-term view may be incomprehensible to many. To clarify this, it can be said that the short-term view can be from a few seconds to several months, and it depends on the asset being traded.
Basically, traders use technical analysis methods to the market analysis , and in fact, they make decisions about the past movements of the market for the future. They have put the slogan of everything in the price on their agenda. My goal is not for traders to keep assets, but to make a profit as soon as they reach their target price and get out of the market.
Now that we have a definition of these two terms, let’s make a comparison between these two ways of earning money
Decision making:
Decision making is an important pillar in economic activities, so there are different methods for the investor and the trader.
trader:
Traders will make decisions about entering assets based on technical analysis. They need to constantly monitor the news and information and change their strategies quickly depending on the situation.
investor:
Investors invest based on fundamental analysis. They, depending on economic conditions, inflation and … they invest with a long-term vision. Fluctuations are not important to them and they are looking for the value of their assets.
Income:
trader:
Basically, the only source of income for the trader is the change in the value of the asset over time. Buy / sell at one price and sell / buy at another. And benefits from these conditions.
investor:
Investors can have different sources of income. For example, an investor who invests in the stock market, in addition to changing his stock price, can use factors such as annual stock dividends, capital increase in stocks, and so on. And also exploit
Costs:
trader:
In trading, we have to pay more for transactions. When you trade an asset, you must give the relevant transaction fee to the service provider, whether it is a stock broker, broker or…. Let’s pay. Therefore, the more transactions, the higher the cost.
investor:
In investing, since it is usually done on a long-term basis and basically a limited number of transactions are made, less work fee should be paid to the service provider.
Risk:
trader:
In principle, traders face a higher risk. When you make a trade, you may face unfavorable conditions in a few hours or days and be forced to withdraw from the trade with a loss. Of course, keep in mind that in a crisis, traders can quickly exit the market and limit their losses.
Investor:
Investors generally do not pay attention to fluctuations. They focus on assets in the long run, so losing assets in the short term is not important to them. But keep in mind that in critical situations such as wars and etc. Long-term investment can turn into good conditions.
With the given explanations, it is possible to recognize the difference between investing and trading to some extent. Choosing which method to choose for you depends on your moral and personality traits.
