Differences Between Stock Investments and Stock Trades

Posted on 21st Jun 2018
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Differences Between Stock Investments and Stock Trades

Most of the people now, prefer stock market as the best source of earning via legal and reliable process. Beginners as well as experts issue the terms, ‘Trading’ and ‘Investing’ frequently, but majority of them aren’t aware of the basic difference between them. And nothing can be more harmful than entering the stock market without having a fluent knowledge of each and every aspects of it. And that too, starts with two most basic terms and their differences, ‘Trading’ and ‘Investing’.

STOCK- WHAT IS IT?

To understand the trading and investments, we need to deal first with the common prefix term ‘Stock’. A Stock is a part of any company’s entity that they lease out in share market to be bought by others. Thus the stock buyer is liable for the portion of the profit from that specific stock and also the risk factors. Now generally the stocks are of two types: (1) Common Stock (2) Preferred Stock. The Holders of Common Stock have the power or the right to have interference and votes on the major decisions of the company and have to be satisfied with the dividends allotted to them by the management only. On the other hand, a Preferred stock holder doesn’t merely have the right to vote or question on the company’s decisions and receives a minimum dividend. Every stocks are generally traded in batches of 100, since assuming just a share of stock means a very little amount of ownership.

Stocks are getting a growing demand. People are attracted to it because it can make them really great fortune. Someone has rightly told regarding it that, “Job can bring you wealth, but trading can bring you fortune”.

WHAT IS TRADING?

Trading in simple words can be defined as buying and selling, i.e., having transactions with commodities, stocks, or any other physical or digital issues. The main motive or goal of having trade, whatever you say, is to generate outstanding returns under the shadow of risk factors. Trading defines to transaction or motility of stocks or whatever in a stock market in short span of times; let’s say a week, a month or even a day. With perfect trading skills, one can easily have 10-15% solid returns, per months, by keeping himself at the safe side. Usually, the returns or profits generated during trade come from one ground principle, “Buy low, sell high”. Anyone who could keep himself, bitten to this motive irrespective of the market condition, is bound to have profit. There are many tools and techniques that are employed by a professional trader to dig out and specify the actual market conditions suitable for setting up trade or inaugurating trade with stocks. There is nothing different issue with the term, ‘Stock Trading’. This term means, having transactions of the shares of stocks or batches of stocks that are being traded by a trader. Stock traders can be of the following types:

  • Swing Traders: whose trade time ranges from days to weeks
  • Position Traders: Whose trade time ranges from months to years.
  • Day Traders: Whose trade time range within a day only.
  • Scalp Traders: Whose trade times are fluctuating for every second to minutes.

WHAT IS INVESTING?

Now comes the second important factor in the financial market world, Investing. Wondering what it is? Investing generally refers to the procedure of holding a bought commodity, a stock, currency or any other units, for long time, usually for years. Investing is a tactics where, an investor buys portfolios of stocks, baskets of stocks or MF with an aim to get some serious profits over an extended time frame. Whenever an investment takes place, investor, always focuses on the background, history, market situation, situation of the company whose stock they are going to buy, and keep a daily track of their financial sectors. Long term investment needs widespread research, not advanced tools and tensions. Share markets may fluctuate, but in long term there is always a base marginal increase in the specific stock value so the risk in investments are way too less. Professional investors can compound any profits or may reinvest more dividends within the pre-existing stock.

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DIFFERENCES BETWEEN STOCK INVESTMENTS AND STOCK TRADES

Now that we have gathered some random ideas about the individual terms, Stocks, Investments, and Trade, we can churn these ideas to a clump to get some valuable differences among the term. If we need to clarify our doubts regarding financial market complexities, we ought to know how and why one factor is different from other.  Let us have a look in the below comparisons based on different aspects.

Stock Investments vs Stock Trades
Points of Differentiation

Stock Trading Stock Investing
Timeframe of Holding Time frame fluctuates from seconds and minutes to an year They generally have timeframe greater than a year and even up to a decade.
Risk Involved Generally they are more risky. Generally they have lower risks.
Returns Stock trading earns more returns in comparison to short time frame. Stock investing earns comparatively less returns in compared to time.
Tactics involved Stock traders deals with tools to evaluate moving averages, Graphical representation, as well as Stochastic Oscillators and other equipments. Stock investors use analytics to research the market situation, company’s basic financial ability and price/earnings ratios, management forecasts etc.
Asset nurturing Stock traders can’t generally nurture their stock assets to combine with fresh ones or distribute the profits or loss in the existing stock. They just buy one time and sell them one each at a time. Tactically stock investors can merge their assets as per their needs to minimise the risk and enhance the profit as much as possible. They can infuse dividends into the shares of stocks also.
Transaction frequency Transaction frequency is high enough for them. The transaction frequency is much less.
Paying of Tax Due to number of transactions within short periods, the tax implied is generally higher. Transaction frequency is much less and so, the investors need to bear less tax.
Psychological factors Stock trader’s motive is to make money in the shortest possible way. So irrespective of company’s underlying fundamentals, they emphasize more on crowd psychology and market movements. Stock investors are rather optimistic. They analyse the fundamentals of the company as well as keep an eye on the market movements. They are not worried of the seasonal movements or fluctuations.
Course diversion Stock trading is a rapid and dynamic buying and selling. Thus if not followed in a sequential manner, may result in diversion of its course towards gambling. Stock investments are generally a cool and slow procedure that keeps hold your assets and funds for long. They might get felled into savings category too.
Types or Categories There are mainly 4 types of trades- Scalp Trade, Day Trade, Swing Trade and Position Trade There are principally 2 types of investments- Fixed Income and Variable Income.

CONCLUSION

There are still many confusions regarding distinguishing between Trade and Investment. Many Financial experts fail to elaborate it but the fact is, if anyone can go through and understand each of them individually in depth, he or she can easily figure it out themselves. The above mentioned is just a piece to help you out in analysing the basics of financial ecosystem. Hope everyone would make it out easily, as the topic has been expressed in extremely easy language and friendly approach. Until and unless anyone gets their doubts clarified from the roots, it’s impossible them to go down deeper.

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User Comments

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1. CA Sachin Jain  Jun 21, 2018 11:23:23 AM IST Reply

Nice article, Investing and Trading are two different philosophies, but some experts consider Investing is a planning and Trading is your final execution. The only major difference is Investment is for long terms and can be adjusted after seeing the long-term performance, where trading is for short term. Investment can be done via directly buying stocks of companies with strong fundamentals, giving high dividends or you can hire some Investment professionals who can guide for a long-term point of view, another way of investing in stocks are via Mutual Funds, ETFs, where professional fund managers will take care of your investments.


Generally, Trading is high risk and high return scenario and person need to invest a good amount of time to perform the same. Experts suggest if you are new bid and don't have prior experience; Investment is the best option for you, trading is a skill and very sensitive area.


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