As a stock market beginner, the choice between investing and trading is the toughest to make. This becomes even more difficult when one has no idea about both. Without an understanding of both these financial strategies, one can never succeed in stock markets and be profitable. Also, one cannot make any rational decisions about when to buy and sell if they don’t know whether they are trading or investing.
So today, we will simplify the basics of investing and trading for you. This would help you decide which stock market strategy you should start with, just like you would learn in stock market courses online free with certificate.
What is Investing?
Investing, simply put, is when you buy and hold an asset with a long-term commitment. The goal of this strategy is wealth creation. Investing could be done in assets like stocks, bonds, or mutual funds with the expectation that they will grow over time. One could invest for a period of more than a year and not lesser.
Types of Investments
Short term investments: These are done for a period of less than 3 years. The goal in this approach is to capture the rise of a certain sector due to a reform, technological advancement, or cyclicality.
Long term investments: These are done for a period of more than 5 years to generate wealth from the power of compounding. Such a massive capital appreciation is possible in this approach from dividends, bonuses, splits in the holding period.
Advantages of Investing
One of the biggest perks of investing is the power of compounding, which multiplies your money from the concept that ‘money makes money.’ Also, one of the benefits of holding shares for long is reduced impact of short-term market fluctuations. This is because markets go up in the long run for a developing economy.
What is Trading?
The strategy of trading involves a more active approach. The goal is to profit on a shorter time horizon and frequent transactions compared to investing. Trading is done based on identifying, analysing, and following the trend. To trade, you must know how to do trend analysis. It’s about seizing opportunities in the market to make quick profits.
Types of Trading
Day trading, swing trading, and position trading are a few common trading strategies in the stock market. While trading seems to be a lucrative option to provide you with quick profits, it comes with higher risks and requires a keen understanding of market trends.
Advantages of Trading
One of the biggest advantages of trading is the flexibility and adaptability to market changes. In investments, you could do nothing but sticking to your strategy when the stock markets are crashing. On the flip side, while trading you could short and profit from the falling markets. Trading is rewarding and ideal for those who prefer quick gains over long term gains.
Factors to consider while investing or trading:
Risk Tolerance: It doesn’t matter whether you’re investing or trading, risk tolerance or risk management is an integral and important aspect. Before deciding to invest or trade, you must assess your risk tolerance. To put in simple words, you should plan your investments and trades on the basis on how much you’re willing to lose on the flip side. You must understand your risks to avoid irrational emotion driven decisions and choose a suitable investing or trading strategy.
Time Commitment: The decision to trade or invest should be based on the time you could dedicate in research. Investing often requires less time, making it suitable for those with busy schedules. Trading, on the other hand, demands more time for research and chart analysis. For example, you could be done with a few stock research for investing in an hour, but you might not even find a couple basic candlestick patterns in that time, if not using a screener. Screener is a tool that helps to segregate stock on the basic of certain parameters and is often taught in stock market free webinars.
Knowledge and Research: Both investing and trading require understanding a deep of the market. Your research is the key to making decisions to buy and sell in the market. To get that better understanding you could even consider enrolling in one of the top 5 online stock market courses in India or a good stock market paid course.
Making the decision
Setting Financial Goals: You decision to trade or invest must align with your financial goals. Doesn’t matter whether your goal is to build a retirement fund or fund your dream vacation, your approach should reflect your aspirations. You could also take help of share market institute in Noida to break down and simplify your financial goal in numbers.
To conclude, if someone is starting their stock market journey with passion one could take a balanced approach. This approach would consider a diversified portfolio for long-term growth with power of compounding working in their favour while occasionally exploring trading opportunities. This combination of investing for long-term growth and trading for short-term gains is a well-rounded strategy that even the best stock market courses in Delhi vouch for.
It is very important to remember that the decision to invest or trade solely depends on your goals, risk tolerance, and time commitment. As you start on your stock market journey, remember there’s no one-size-fits-all answer. With time, you’ll develop your own setup, and it might even make sense to do both in the beginning. Happy investing and trading!