Due in large part to the booming online trading market, people often get confused about whether what they’re doing via their online platform of choice is in fact trading or investing. The lines become blurred a bit when brokers operating an online trading platform offer both of these financial instruments with which to buy and sell securities.
The lines are blurred further when one takes into account the fact that someone using these financial instruments can indeed be both a trader and an investor at the same time, with a single transaction effectively doubling-up as being a trade and an investment at the same time. Fundamentally however, there is a difference between trading and investing and there is a difference between a trader and an investor.
It’s perhaps pertinent to start off with investing because trading is essentially a spin-off of investing. An investor is fundamentally someone who takes a long term view on putting their money into something from which they expect or predict some growth – growth which will hopefully result in some financial success in the future. So even if you make use of an online brokerage platform from the point of view of an investor, your outlook is generally a long term one, which means you would buy shares in listed companies (stocks), commodities or some sort of stake in a company or venture with plans to only really cash-in properly once some growth has taken place.
Trading generally takes more of a short-term outlook in that a trader essentially seeks to take advantage of the immediate movement in the markets. The typical instrument offered to traders online is that of Contracts For Differences (CFDs). CFDs are precisely what is written on the tin – a contract you enter into as a result of your prediction of whether or not one or more share prices you’ve selected to bet on are going to increase in value or decrease. CFDs are precisely why there’s been a recent explosion in online trading platforms, quite simply because the brokerage sites don’t really own anything and they don’t produce anything either. So it’s just a matter of going through the requisite compliance processes to qualify as a broker and then make some insane money charging people commission for each trade they make.
Intraday traders are perhaps the most common types of traders, who are naturally drawn to volatile stocks so that they can take advantage of the constant movements of the values of those stocks.
So Which is Better – Investing or Trading?
In my expert opinion as someone who works in the financial industry, I’d honestly proclaim investing to be a better option, but only if it was a question of either-or. Investing is better in my opinion because if you look at the All Share Index of any stock exchange in the world, generally such a portfolio of shares increases in value over time. Your earnings would naturally be slow in this way, but they’d also generally be steady earnings which can be as good as beating inflation at times.
So even if you seek the thrill of the intraday trader and you have a preference for making (or losing) money quickly, your trading efforts should be complemented with a good portfolio of investments. That way, you can benefit from investor-advantages such as earning dividends on certain stocks you hold, while your trading efforts could play off on your investment portfolio to hedge against what would otherwise be serious, fast losses while you’re chasing your next short-term trade.
Ultimately, mixing things up is the way to go, but I seriously wouldn’t recommend for anyone to put all their eggs in the trader’s nest.