What is the difference between Trading and Investing?

 I have often discussed investing in the companies and trading the companies in previous blogs. So let us examine the difference between investment and trading in this blog. 

Let's begin the differentiation

What is Investing?

Investing is an investment of a long-term approach to building an individual's wealth. It includes stocks, bonds, and mutual funds. Assets are held for more extended periods of time like years or decades. 

What is Trading?

Trading is a short-term process with more volatility. It includes stocks, currencies, and commodities. Assets are bought and sold within a short period of time like days or weeks. 

What is the approach to Investing and Trading?

Investing - 

Investing follows the approach of Fundamental Analysis which includes the value of the company. Fundamental Analysis includes Return on Equity, Revenue, Cashflows, Profits, etc. 

Trading - 

Trading includes the Technical Analysis of the stock, including RSI, Moving Average, Volume, Fibonacci Retracement, etc.  Here traders take benefit of volatility. 

What are the risks and benefits?

Benefits

The investment includes benefits of dividends, bonus shares, and split shares during the period of time along with price appreciation of the stock.

Trading benefits the huge profit of the stock with the margin (leverage) provided by the brokers.

Risks

The significant risk of long-term investment is that there is a chance of failure of your investments when any company is bankrupted or suffers a huge loss in business.

The trader indulges in a huge risk of losing all the invested amount in a single trade if any wrong trade is traded.

So here are some major differences between trading and investing, if you know anything else please add them in the comment section.

Thank you