Trading and investing are the main ways to make money on the exchange. There is no clear border between them, but there are still a number of important differences. Traders and investors operate in the same market, performing different tasks and applying different strategies.
Traders are often called speculators, and the essence of their work actually comes down to speculation in assets. The profit is made up of the difference in price at the time of buying and selling. Positions are opened for a short period of time - a few seconds, minutes, hours, sometimes days. This work is associated with a large number and speed of decisions. Another feature of trading is that losses due to wrong decisions are often significant.
When making decisions, most often traders rely on technical analysis. Correct interpretation of the behavior of prices for various assets suggests which direction the charts will head in the near future. Fundamental factors are considered less often, but they can sometimes be decisive. For example, some important political event can affect the national currency rate on a given day, and not in a month or a year. Here and now, prices are influenced by the release of reports, decisions of central banks, statements by top officials of states, financial institutions, corporations.
Licensed traders operate with the money of investment companies, funds, banks. Anyone can trade with their own funds.
Investors are engaged in investing in assets, primarily in securities for a longer period. Their profit is the same difference in price at the time of buying and selling, as well as dividends. In most cases, the income from investing is lower than from trading. However, investing has a number of undeniable benefits. The main one is risk reduction. After all, most securities in the long term grow in one way or another. And if an investor does not limit himself on the time of making a profit and can afford to temporarily go into a drawdown, then sooner or later he will almost certainly receive income.
Investment strategies can be divided according to the time spent:
- Short-term investment. Investment in securities with the aim of making a profit in the next few weeks.
- Medium-term investment. Investment in assets is carried out with the expectation of increasing their value in the future from several months to one year.
- Long-term investment. Investments should bring profit over the next few years.
The analysis of the market depends on the choice of an investment strategy. This is how short-term investors study the daily and hourly time frames. Medium-term investors, along with technical, begin to conduct fundamental analysis. And long-term investors are most focused on fundamental factors - they consider the state of the industry and the economy as a whole, take into account the political situation.
Investing requires much less time. If for successful trading he needs to devote at least several hours a day, then the investor can make only a few transactions per year.
Thus, trading is almost always the main or one of the main occupations, and investing is an additional income.