What’s the Difference between Trading and Investing?
Trading and investing are two ways to make a profit. But their strategies are different because of profit opportunities and time horizons.
Trading is the frequent buying and selling of stocks over a short period of time. The opportunity to make a profit is because of a near term change in the stock price. A price change usually occurs because of technical events, such as industry news or market volatility. The holding period, which is the time between buying and selling, is usually a short time horizon, such as hours or days.
Investing is the buying and selling of stocks over a longer period of time. The opportunity to make a profit is because of the long-term growth of the company. Long-term growth usually occurs because of fundamental events such as company expansion or new product development. The holding period is usually a long time horizon, such as months or years.
Remember, trading has a short time horizon and the profit opportunity is from technical events. And investing has a long time horizon and the profit opportunity is from fundamental events. Trading and investing are different strategies, but both can be successful!
Have fun trading stocks while playing Trading Day, our free stock market game.