Stock investment and stock trading tools are something different. Investing and trading are financial methods of increasing wealth by a period of time by buying and storing a portfolio or asset pool. Although both have the same goal of earning a profit, it turns out that stock investment is different from stock trading.
The main point of their difference is the duration; where the investment focus is time with a long-term tempo while trading is a short-term transaction. This forms the difference in strategy, principle, and action. To find out more, there has been a discussion for each of these financial activities.
Investments in Stocks Conducted by Investors
Investment is defined as an act of accumulating an asset form with a hope of gaining profit in the future. In other words, on the stock market, investment can be interpreted as buying stock activities and then saved and resold later.
Investors are not too concerned with falling stock prices with expectations that prices will rise again later. Investors can be divided into institutional investors (banking, insurance companies, and others) and retail investors (individual investors). One of the famous investors is Warren Buffet.
Because of the long period of time, investors will be very concerned with the factors that can affect the stock. They are not too affected by price fluctuations. Usually, the purchased stock is a healthy issuer and the quality of work is good with solid fundamentals. They focus on purchasing shares on the health of the company.
The investment instrument commonly chosen by the investor is the type of long-term investment such as property, industry (large and small) or can also be a stock. In addition to the value of assets that will increase, investors also take advantage of the dividend distribution on a regular basis.
Buy and hold is the basic principle of an investor. They will save the investment with a period of more than 1 year. They will only release their shares when their goals are met or the quality of the issuer begins to deteriorate. Usually, the type of investment chosen by the investor has low liquidity. They typically use fundamental analyzes such as price-earnings ratios and management forecasts to help identify company performance.
Risks involved in investments are counterparty risk and risk of partial fills. Counterparty risk arises because when you need other parties to buy assets when you sell them, so do the opposite. While the risk of partial fills is a risk that occurs if your assets only partially sold.
Stock Trading by Traders
A trader is someone who takes advantage of price changes to make a profit. In the tradename, the term trading is called trading. So a trader will buy the stock at a low price and sell at a higher price. The time span is usually short-term, can be as long as 15 minutes, 30 minutes or the longest 1 week period.
Trading is an activity done by a trader and can occur in the stock market and bond market. Traders conduct transactions with a frequency that is much more than investors with a short time. If an investor is satisfied with a 15% profit rate annually, a trader looks for the profit level every month. One of the famous investors is George Soros.
Traders focus their strategy on market sentiments and conditions compared to the performance of the stock issuers they buy. If the stock market is experiencing a decline due to the political situation of the country or global economy, then a trader will not enter the stock market before his condition returns to normal. Strategy and plan on a trader will be more directional and clear because they do not hold a trading position with long. Some of the economic strategies used by traders are stop loss, profit target, and risk-reward ratio.
The basic principle of a trader is to buy and sell. They will always take advantage of price fluctuations to benefit from the sell-off. They use technical analysis to know stock price movements. Traders will buy shares of companies that have the potential for price increases in a short period of time
Like investors, traders were exposed to trading risks, namely the risk of capital loss where the selling price is lower than the purchase price, the risk of corporate bankruptcy. In traders, the counterparty risk will be lower, but traders cannot take advantage of the drastic price shortfall (prohibition on short selling).
Knowing the difference between a trader and an investor can help us know the strategy clearly. Surely an investor does not want to invest his money in a company that is in trouble and is threatened with bankruptcy. Here’s also with traders who do not want to buy shares of companies that have good structure but have low fluctuations.
Usually, people will ask, which one is a more profitable stock investment or stock trading? Unfortunately, this question is not quite right. Should the more appropriate question be, which one is more suitable for me, stock investment or stock trading?
If you are oriented towards long-term outcomes, you are more suited to investing in stocks. Learn the techniques for fundamental analysis.
If you are oriented to short-term results, you are more suited to stock trading. Learn the techniques for technical analysis.
Both have potential advantages as well as potential losses. Before you invest or stock trading, make sure you have learned first what you will choose first.