People have been investing since the beginning of time. When one is investing, the “investor” provides cash (capital) to help a business. The company, in turn, grants the investor an ownership interest in the company. When we talk about stocks and companies, this investment results in the investor receiving shares of the company. When you invest in a business, you expect the business to grow well and be prosperous, which will result in the investor making a return on their investment.
There are a few ways to make these investments. When a company goes public for the first time, the company sells some shares to the public, it is an initial public offering (IPO). These offerings create an influx of capital for the corporation, even raising millions or billions of dollars. As in the first example, investors in this IPO receive shares in the company and therefore own a part of the company.
The act of “negotiating” would be taking the shares of a company and selling them for profit, with the goal of buying back the shares at a lower price. Trading is not a highly valued occupation. The media considers it a game and the actions of those traders with very large funds can be scrutinized for wrongdoing. In recent years, traders have been viewed in a kinder light than in the past, but intraday trading is still frowned upon as an activity.
Stock trading varies greatly from investing to where an investor enters a company and is held for a period of time. The trader buys and sells the fluctuations of the shares within the stock market. Looking to make a profit and risk less capital. A trader trades on many different timelines, trades on the day, trades swing, long swing, and scalp.
For example, a trader makes an investment in an initial public offering because the business looks promising. News about the company appears and many more trades are interested. With everyone buying shares, the demand for the company’s shares drives the price up. When the trader in the example first entered the stock at the IPO stage, he paid $ 15 per share, now the demand brings the price to $ 30 and now even $ 45.
This triggers all trading alerts and the trader goes in and buys the hot stock pick. This drives the price up and over $ 100 in no time.
How did this happen? A company with a strong share structure had good news and seemed undervalued, investors and traders alike bought as they saw an opportunity to make money from hot stocks. This caused the price to multiply by ten. Nothing else has happened, the company is not making a profit and who knows if the news will be profitable. At this point, the original investor could sell his shares for a big profit.
Or, the investor can wait to see if the price doubles again or drops as the company grows.
If I am that investor, I sell. I am eliminating all risks and securing my profits. However, that makes me a trader as I am buying and selling stocks. The investor would have let the company grow and grow hopefully until it became very profitable. This is the main difference between investing and trading. Since you are always looking to make a profit, how long will you stick around? The original investor can always wait for the price to drop a bit and go back in if he really wants to invest in this company.
Over time, the terms trade and investment have changed to mean different things. With the growing popularity of intraday trading, trading is often viewed as buying and selling for a shorter period of time. Although, investing is considered to be held in stocks for a longer period of time. These definitions are not completely accurate, but this is what trading and investing looks like. Actually, a lot of this is in the mindset of traders or investors when they enter the stock market. These mindsets are completely different and you better know what you are doing before putting your hard-earned capital into the stock market.
As mentioned above, intraday trading is frowned upon by the general public. Just traders like to point out that most day traders lose money and day traders have lost fortunes in no time. They also consider it a game of chance. Traders like to point out that investors held onto their stocks during the internet bubble and lost everything, waiting for a turn to make better profits. When done wrong, both trading and investing can cost you a lot of money.
Intraday trading is based on knowledge, skill, technique, and a little bit of “feel.” You have to put your rules in place and follow them. You put these rules in place for a reason, you can’t stop following the rules as soon as an action goes the wrong way, this will only compound your losses. Sometimes this can be difficult as you just “know” that you are right and sometimes you will be right and sell just to see the stock go up again. There are a ton of day trading strategies that you won’t be good at all of. Choose the strategies that work best for you and trade them by following their rules.
These are just a few of the many ways that trading is different from investing. I can’t say it’s better. I do daily transactions to earn money, but I have IRA and 401k accounts that are pure investment. Especially funds where I let those most in tune with the fundamentals (hopefully) pick their stocks. With intraday trading, I set my rules and trade highly volatile technical stocks.
The only way that trading or investing is wrong is when you lose money. If you are making money, you are doing it correctly, as that is the goal.
