You're always looking for advice and tips on how to make your money go a bit further. Everyone should be keen to take control of their personal finances and find ways of earning passive income. As a result, you often get experts telling you to start investing in stocks, shares; whatever! Similarly, you also get people telling you to trade the same things.
Now, this gets confusing as you wonder…are these people talking about the same things? Investing and trading are regularly used interchangeably, but are they the same?
When you take a deeper look at the two terms, you notice there are some massive similarities, but also a key difference between the two. So, they kind of are referring to the same thing, but they're also not. Sounds confusing, right? Hopefully, by the end of this article, everything will be a lot clearer.
What is investing?
Investing refers to instances where you buy assets with the hope of them growing in value. For example, you buy shares in a company and hold onto them as they get more and more valuable. Or, an even more recent example, everyone that bought Bitcoin a few years ago saw a huge return on investment as it grew to astronomical values.
Effectively, the goal with investing is to purchase something, then hold onto it for a long time. Buying a house is an investment as you keep it, live in it for years, then eventually sell it for more money than you bought it for.
What is trading?
Now, trading is technically a form of investing. They are similar in the sense that both acts get you to purchase assets with the hope of making a profit. However, trading refers to a short-term investment approach where you are buying and selling things very regularly. A lot of people will do Forex Trading as the value of currency pairs can fluctuate throughout the day or week, meaning there's a possibility to make money if you buy and sell at the right times.
Similarly, people trade stocks and shares if they are likely to go up and down in value quite often. That's the key here; trading is all about making frequent purchases and selling for profits in the short term. You are actively looking for investments that aren't steady. You want the possibility of something soaring in price or decreasing. Volatility is what makes trading work!
Are they the same thing?
By now, things should be a lot clearer. As you can see, trading and investing are not technically the same thing. If anything, trading is simply a short-term form of investing. Investors will look for assets that will steadily grow in value over a long period. Traders will find things that can go up in value quickly, buying and selling in the short term.
The benefit of investing is that you can ride out short-term losses. The shares you buy may depreciate in value for a few months or years, then go much higher than ever before. With trading, the benefit is that you can make a lot of money in a short time.
Both methods are great ways of growing your wealth, it just depends on whether you're interested in short-term wins with more risk, or long-term games with added security.
Matt Hoffer is a crypto enthusiast and gamer. When he's not de-constructing the blockchain, you can find him chilling with some lemonade in the shade or playing a round of golf.