What Is the Difference Between Trading and Investing?

Many people struggle with the difference between trading and investing. Some individual’s feel that they are the same thing and those people can’t be further from the truth. The best way to show the difference between trading and investing is to define both terms.Investing is the process of purchasing assets specifically for the return made from interest, rent or dividends. On this basis, long-term equity buy-and-hold, property and fixed interest holdings are all investments. This is the concept of income over time and is what the majority of people do with their retirement funds and long-term investing strategies.Trading on the other hand is the endeavour of taking advantage of a movement in an underlying asset’s price. As such, short-term speculative positions in any market specifically in order to profit from the movement in the asset’s price would be classified as a trading strategy.To reconfirm, investing is buying an asset specifically to profit from the secondary returns on an investment, while trading as an endeavour is specifically in order to profit from movements in the investments underlying price.Interestingly, as investing focuses on holding an asset for a secondary return, traditional investors cannot be in the market on the short-side. Short selling is selling an asset anticipating a fall in the asset’s price in order to profit. Essentially, it is the same as buying, then selling, but in the opposite order.Our work specifically focuses on trading, which has several notable advantages over investing:
More spoke of potential market (foreign exchange for example)
Higher potential for leverage (which can enhance returns)
The ability to sell short an asset (thus also taking advantage of price falls as well as gains)Either way, whether you are a self led investor, or a trader trading directly through an online platform, your choice of broker may well be the most significant decision you have to make when beginning trading.A broker can be anything from a “trading coach” to someone who simply provides trade execution. Either way, and as you would expect, you must simply decide on a broker who can provide you with the services you require.Brokers earn their money from commissions on sales in most cases. When you instruct your broker to buy or sell a stock, they earn a set percentage of the transaction. Many brokers charge a flat ‘per transaction’ fee.There are two types of brokers: Full service brokers and discount brokers. Full service brokers can usually offer more types of investments, may provide you with investment advice, and is usually paid in commissions. Discount brokers typically do not offer any advice and do no research – they just do as you ask them to do, without all of the bells and whistles.A short check-list of questions you should ask your prospective broker are:
What is their level of experience
Are they experienced in the markets that you wish to trade
Can they provide trade advice or recommendations
Can they spend the time providing coaching to you
Do they actually provide excellent execution and fills on trade
Do they fit your style and personality