Every newcomer to the stock market is invariably faced with the need to choose a strategy. What to pay attention to, and what is the difference between trading and investing? How to understand which of the two to choose?
Investment is the acquisition of stock instruments for a long time. They are made for the future, i.e. for the medium- and long-term time.
As for trading on Forex, these earnings belong to the short-term category.
Roughly speaking, transactions that market participants close during the year are considered trading, while those that are designed for a longer period are considered investments. There are extreme representatives of these two types of activities on the market:
- Scalpers – their trades take minutes or even seconds.
- Ultra-long-term investors – they aim for several decades ahead at once, and they consider investing as a successful and reliable way to create a personal pension fund.
However, such strategies in their pure form attract a relatively small number of people.
The Main Difference between a Trader and an Investor
One of the most attractive investment features is the prospect of receiving passive income. It is this point that becomes fundamental when choosing a strategy for people who are tired of working hard.
Nevertheless, here, we must not forget about caution. Very often, it will take a long time to wait for passive income, and with a minimum initial investment, it will take a very long time. But after all, all this time, you need to eat something, wear something, and live somewhere.
Therefore, even counting on passive income in the future, you will have to go to the same job with all its ‘advantages’ in the form of a tight schedule, transport problems, petty bosses, and unpleasant teammates.
Trading, in turn, is by no means a passive income. This is a full-fledged work. A significant advantage of choosing trading is the opportunity to quickly jump from classic work while creating at least a cent account.
Trading or Investing?
We can summarize the following: there is no single universal strategy to satisfy the interests of each market participant. The selection must be strictly individual.
Recommendations for traders
Success in trading is achieved through a good knowledge of the markets and even more knowledge of oneself. In addition, here are the basic rules for successful trading:
- Creation of a trading plan. It is necessary to determine the features of buying and selling, in particular, when shares rise or fall by a certain percentage.
- Maintaining the original plan. Remember that even experienced traders do not always follow the original plan. It is important to make only informed decisions and look for ideal entry points. If you have a well-designed trading plan, you will be insured against making emotional decisions.
- Determining the degree of risk. Find out how much money you can afford to lose. Decided? So, don’t go over that threshold. Often, traders set a maximum loss at 5% of the deposit amount.
Finally, please, drop your illusions. Advanced traders use many complex algorithms to trade. Getting a stable profit from trading is not at all as simple task as it seems.
Note to the investor
Is your goal long-term wealth? Then move on to investing. Here are just a few top tips:
- Create an investment plan for buying, selling, and rebalancing assets.
- Get ready for a long journey. You need to be patient and disciplined to successfully survive any ups and downs in the market without stress.
- Analyze a wide range of stocks for long-term investment.
And, most importantly, don’t panic. When the market goes into temporary drawdowns, it is important to be able to control yourself.