difference between a trade investment and a non trade investment
There are millions of ways to make money in the stock market but the best way to make profits is Investing and Trading. A lot of people confuse the two terms and may use them interchangeably but one must know that they’re quite different except for the fact that both of them belong to the same market and have the common aim of making profits.
Investing
The word investment basically means purchasing an item or an asset, which is likely to generate income or appreciate its value with time. In the words of Economics, an investment means purchasing of a good that will be consumed in the future for the sole purpose of creating wealth. And in finance, an investment refers to a monetary asset (stocks, bonds, mutual funds etc.) purchased with the idea that the asset will provide income/profits in the future or will be sold for a much higher price to earn profits.
Investors usually are curious to find out the intrinsic value of an asset before allocating their funds. They make sure that their investmentsare utilized to grow their wealthand/or provide a regular source of income. They perform technical or fundamental analysis to determine suitable investment opportunities and also prefer to reduce risks while increasing the returns.
- Investing is the only financial tool that helps you take the advantage of the magic of compounding*.
*The process in which the value of an investment increases because the earning on an investment earn interest with time.
- Short-term market sentiments and emotions don’t play any significant role in investor’s decision-making.
- It helps you to create regular income out of the investment.
- Helps you plan your retirement better.
Trading refers to buying and selling of shares, commodities or even currencies aiming at making short to medium term gains.
Trading basically involves a technique of buying these commodities at a lower market price and selling them at a higher market price within a short period of time.
- Trading allows you to earn profits in both rising and falling markets by either buying or short selling the assets.
- Trading allows higher leverage hence buying power increases. Most brokers enhance your buying power by blocking a small percentage of margin money.
- Trading usually has a very low brokerage commission.
- It is totally on price fluctuations; therefore, one doesn’t have to study a lot of the assets or the industry.
- Trading allows you to earn profits in a short span of time.
- High Volatility, the risk of losing the capital is very high.
- It is a very risky affair either you earn or you lose.
- Trading may not be sustainable in the long run.