Trading Stocks vs. Investing: What’s the Difference?

Trading and investing in stocks are two different approaches to profiting from using the stock market. However, they are two very different methods. Traders seek short-term profits, while investors look for long-term gains. Each method has its pros and cons, strategies, and nuances, but both have the ultimate goal of making money on the markets.

Basics of Stock Trading

Stock trading refers to people who have more frequent trades. Swing traders, day traders, and scalp traders all fall into this category because it requires a more active approach.

Stock traders are looking to make profits in a shorter time period, often using stop-loss orders to close out losing positions. In contrast, investors typically wait out downtrends in the market, assuming that it will pick back up and still make a profit.

A few examples of stock trading categories include:

• Scalp Traders – Hold onto positions for up to a few minutes, and not overnight.
• Day Traders – Hold onto positions during the day, but not overnight
• Swing Traders – Hold onto positions for a few days to multiple weeks.

Basics of Investing 

Investing refers to people who invest with a goal to gradually earn money over a long period of time. They will buy and hold onto stocks and other investable assets to earn a profit. Instead of trading stocks in a single day, or over a few weeks, investors hold onto stocks for months, years, and even decades.

Due to the longer period of time, investors typically hold onto their investments even during a downtrend, with the expectation that their investments will rebound and any losses will recover.

Similarities Between Trading and Investing

Active trading and long-term investing both have the ultimate goal of making money on the stock market. The main difference between them is the starting capital, time commitment, and how long you buy and sell a stock.

Both trading and investing require patience and discipline, especially when it comes to your emotions. Emotionally entering or exiting trades can lead to big mistakes.

Final Thoughts 

Active trading and long-term investing have the same goal, just different methods of getting there. One may be a better fit for you, or, you may find yourself using both to meet your goals.