Investing and trading are the two genres for wealth creation in the stock market. Both genres use different approaches when it comes to wealth creation. Let us explore the difference between these two and find an answer that is a better option for wealth creation?
When we talk about the stock market, we do have different trading options. These are Intraday trading, Swing Trading, Positional Trading, Portfolio building. The first three terms are used for trading and the last option is the term used for investing. In trading, an Individual holds his money in a stock for one day, or a few weeks till he gets the high return on capital invested. But in investing, the individual holds a stock for years. Trading and investment require a skill that needs to be learned before entering the market and both trading and investing implies risk.
Trading is difficult as the profit or loss depends mainly on entering a stock at the right time. Sometimes, an individual misses the opportunity or enters a stock at a higher price which leads to loss. In trading, an individual holds a stock either for a few hours or a few days. Therefore, time risk is very less in trading. Most people love intraday trading as they can square off their positions on the same day and chances of getting good returns are higher. If an individual acquired a skill to trade in the market, in few years, he can be a profitable trader, and the return, he would get is higher than investing money in any other financial market.
On the other hand, in investment, an individual looks for company fundamentals and values, and based on that he invests in stock for long terms. The time risk in investment is very high. Sometimes, even a good company possesses losses in the long run, and the stock falls to a very lower value. We can see Tata motors, yes bank, DHFL, etc. are the stocks which were trading at a lifetime high in the past. Now, you can find such stocks at a lifetime low.
As both genres have pros and cons, trading or investment depends on people’s capability to take the risk, availability during the market hours, goal, and return expected. Both are good if used wisely and both are dangerous if we do not have the acquired skill. At pathfinders, we emphasis on doing both: intraday and portfolio building. Intraday trading help to generate income and long-term portfolio building helps to grow your capital. A skilled person should look the option as earning 10 percent in a month from the intraday and invest that money for long term portfolio building and expect only 2 percent per month on long term portfolio. Doing this, an individual become financially free in the coming years.