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Stock Trading vs Long term investments all you need to know.
What is long term investing?
Long term investing is where one remains invested in one or more assets in the stock market for a lengthy period of time; usually five or more years. Long term investing is one of the proven ways to make a meaningful yield from your equity trades on the stock market. In fact, certain equity mutual funds are meant to be invested in for a long duration. Hence, this type of investing is carried out for long term gains.
What is Stock Trading?
In contrast to long term investing, stock trading has a much shorter duration. In this type of trading, the frequency at which one trades is a lot higher. Stock trading is the practice of buying and selling equity stocks, commodities, currency, ETFs, and other financial instruments often, sometimes even within a single day. This type of trading is carried out for short term gains.
Stock trading vs Long Term Investing
The core difference between stock trading and long term investing has to do with time. The latter takes years on end while the former can be completed within a day alone. In fact, even the goals can somewhat vary. Long term investing is mainly carried out with the goal of wealth creation. Stock trading’s goal can simply be to earn instant returns from the constant price fluctuations on the stock market. Based on personal preference, people opt for stock trading or long term investing for the majority of their portfolios.
Another key difference between these two types of trading strategies is that when one invests for the long term, they attempt to minimize their risks and maximize their returns. However, short term traders are well aware that this type of strategy will carry both massive risks and massive potential returns. If you wish to earn significantly from the huge price fluctuations seen within a single day, you need to be putting in swathes of money into that risky trade.
The third difference between these two types of trading strategies on the stock market is that long term investors rely primarily on fundamental analysis to assess the performance of their trades. While, on the other hand, stock trading requires the aid of technical analysis as well and often in place of fundamental analysis. This means evaluating the stock price using charts and historical patterns captured by these tools.
Another potential difference between both these styles is that long term investing barely has any commission attached to it. One continues to hold an asset or security for years on end without any transaction costs. Alternatively, stock trading requires moving around one’s securities constantly. The commission adds up based on the frequency of how one shuffles their trades during any given day.
In conclusion, neither of these styles is superior to the other as both fulfill their unique goals in their own way. Stock trading has a bigger learning curve than long term investing so financial advisors always recommend having some long term investments as a backup if you are learning to trade on the stock market.