Trading VS investing

18 FEB 2022

Trading is the activity of buying and selling assets such as stocks, bonds, commodities, derivatives, and other securities. Trading is the process of executing an order to buy or sell financial instruments on a stock exchange. Financial transactions take place on a trading floor in an exchange or in an over-the-counter market through the bilateral interaction between buyers and sellers. Both types of markets can be difficult to navigate for beginners without any financial experience.
In practice, both trading and investing are sometimes referred to as "playing the markets," which refers to buying and selling primarily index funds.

"Individual investors are fundamentally different from traders. Traders typically give little thought to the long-term impact of their trades; investors focus on the potential long-term impact of their investments".

There are two types of investors : those who buy and hold, and those who trade stocks. You want to be in the group of investors who buy and hold.

In order to be a successful investor, you need to know which type of investment will work best for you—amateur or professional. A professional is someone who invests their own money into a company with the hope that it will grow in value in a short period of time in order to sell at a profit. An amateur investor invests a small portion of their income in the hope that the stock will grow in value and be able to retire off of it.

The only things that matter for an amateur investor are the winning years. If you are one who wins, then great! You can buy more stocks or buy more of the same stock. If, on the other hand, you end up losing money on your investments , don't panic.

That's why you should always invest with a long term-mindset, meaning you only buy stocks for the long haul and not for quick capital gains. In the stock market, there are markets that go up and markets that go down. Always remember to buy stocks when risks are low and sell when risks are high.

There are two types of annuities: fixed and variable; Fixed is best when interest rates are low while Variable is best when interest rates are high.

Investment decisions depend on the investor's goals and financial situation. Investors can make investments in, among other things, stocks, bonds and endowments. Unless you're an experienced investor, it is probably best to consult a financial planner or investment advisor for investment decisions. Investor education is necessary for investors to make informed decisions about their finances and investments.

What is trading?

Trading is the buying and selling of financial instruments (currencies, stocks, shares) for profit. What makes trading so attractive is that retail traders can make money on high odds against them. In order to achieve this, traders must take a position in an asset and then close their position—that is to say: they buy an asset at a low price and then sell it later on at a high value.

So, as you can see, trading and gambling are very similar in that they require a person to take a position on a financial asset and hope the value will rise.

Trading vs Gambling
However, there are some fundamental differences between trading and gambling. While both involve risk, traders usually have some insight into the asset they're trading in.

Another difference is that trade decisions are made with the idea of generating a profit, whereas gambling is an activity where the decision is made with the aim of losing as little money as possible.

The main goal in trading is to make a profit, while in gambling you can win or lose money—it's not necessarily a means to an end.

So why do so many people still regard trading as gambling? Well, it's due to the common phenomenon of traders having no idea what they're doing.

Can anybody be a trader?
In a word, no. However, the field of trading has been democratised to a degree where just about anyone can take part. In fact, successful traders have been using this technique for years to take advantage of early morning news and currency fluctuations.

Can you be a successful trader?
The odds are stacked against you, but yes. Most of the successful traders we know started out as small time traders who have worked their way up to trading for a living.

Few key notes if you are looking forward to be a trader:
1. Long, short or spread?
Leverage is the key. The first thing most traders do when they get started is go long or short a position. What they don't do is spread. This can be a double edged sword of sorts because it requires the trader to have a lot of capital, yet it has much shorter time frames than other methods. However, once you add spreads to your arsenal of trading strategies, you'll see that long and short almost always work out as a group.

2. Know your market ; "Know your market, and trade accordingly." - Jim Rogers

3. Never trade with money you can't afford to lose. Making mistakes with your money can have disastrous consequences. This is why it's crucial to avoid doing anything that could put you in a financially precarious situation.

4. If you're gonna trade, trade big! The millions of people who try to succeed in the stock market might not realise that even if they have the money, it takes a significant amount of time and work to learn how to trade.

5. Never put all your eggs in one basket. Never put all your eggs in one basket while trading, because the chances of losing everything are too high. The best way to trade is to have a lot of different accounts so that if you lose one, you are backed up with the other's.

6. Trade 1-10 contracts at a time , depending on capital available, volatility and liquidity.

7. Keep records!

8. Stay cool & stick to the plan!

Traders fall under 4 categories
2. day traders
3. swing traders
4. long term investors

Scalpers buy and sell stocks based on short-term price movements.
Day traders trade on the same day's market change. Also known as intra-day trading, they use fast movement to make a profit by capitalising on inefficiencies during the moment of transition from one market state to another in 24 hours or less.
Swing trading is marked by smaller trades with longer time frames (1-3 days) between them as well as a lower risk for quick profit accumulation.
Long-term investors or buy-and-hold investors are in it for the long haul, they seek to profit from the natural growth of the stock market over time and have a buy-and-hold strategy.
The tools they use are: Stock charting, technical indicators, fundamental analysis and sentiment indicators. Analysts and speculators also trade on insider information via black box trading and algorithmic trading.

Technical strategies include: Technical analysis, fundamental analysis and sentiment indicators.

Technical analysis (charting) looks at historical prices through charts and graphs to estimate future activity of the asset in question. There are many different chart patterns traders use in their analysis, for example: Head and shoulders, triangle, wedges or cup and handle patterns. The patterns are then used to signal possible market turning points.

Fundamental analysis looks at the financial statements, balance sheets and other company data from their own perspective to identify whether a company is worth the price it is being sold for. They may also attempt to understand the economic trends that are affecting the stock market. Some fundamental analysts look at ratios such as P/E (price to earnings), sales per share, EPS (earnings per share) profit margin, dividend yield and price to book value.

Sentimental indicators are more difficult to define, but these are based on the idea of the stock market being emotional. They look at the sentiment of investors related to a particular stock and use this information to determine whether it may be time for a trader to buy or sell a stock. Following up with who is buying and selling a particular stock helps traders identify who may be considered an expert when it comes to that particular security. Traders can then attempt to gain more insight into a trade by talking to these individuals.

What Is Investing ?

Investments are often a key component of one's retirement portfolio, but they can be confusing to navigate. They can range from stocks and bonds to bank accounts and technology stocks. What's the best investment for you?

Investors may choose from a variety of assets in their retirement portfolio:
Mutual funds are a type of investment account. They are professionally managed and each share is equal in value to all the assets under management. To invest in a mutual fund, you typically have to have a large amount of money (i.e. $5,000-$10,000) because each mutual fund purchase is called a "share" and costs approximately $100 per share. Mutual funds can be either actively-managed or passively-managed. Although there are exceptions, actively-managed mutual funds are typically more expensive than passively-managed funds. A smaller group of mutual fund companies also make what are called "index mutual funds", which track a particular investment category such as technology stocks, housing, or commodities. Index funds do not attempt to beat the market and charge lower fees to investors. All mutual funds offer the same tax savings and management fees over time.

An exchange traded fund (ETF) is a type of investment account that tracks an index such as the S&P 500 Growth Index or the S&P 500 Value Index. The advantage of an ETF is that you are investing in an index instead of investing in hundreds or thousands of pieces of stock. You buy the ETF, and the provider of the ETF "holds" a small amount of that stock and distributes its remaining assets to investors. As is the case with mutual funds, investment account providers vary in their efficiency, their ability to offer different varieties of securities and their pricing.

Stocks can be purchased directly from a company or indirectly through an exchange. Mutual funds are also sold directly.

These securities are those issued by corporations and government agencies. They can be traded on the open market and the prices may fluctuate.