Investing vs. Trading

Investing and Trading both take place on financial markets but have very different objectives. One of the only things that are similar between investing and trading is that both try to achieve a profit for the investor or trader. 

Investing typically has a long-term time horizon (years to decades) where the objective of the investor is to build wealth by gaining a return either through an increase in the share price or through dividends received by owning the share. Investors would typically try to further increase their profits by reinvesting any dividends they receive from the shares that they own either into the same share or into other shares.  

Any investor is normally more focused on the fundamentals of a company by taking into consideration the performance of the company with metrics such as Price/Earnings ratios and the company's financial results. Because an investor has a long-term time horizon, they are willing to ride out any decline in the share price so long as their analysis still has a positive outcome for their investment.  

Trading on the other hand is normally concerned solely with the movement of the share price over shorter periods of time compared to the long-term time horizon of an investor.  

A trader is more concerned with selling a share at the peak of the share price before any opposite movement in the share price so they can maximise their profit on the trade. Traders will also look to profit from a decline in the share price by short selling. This is a form of trading where the trader will borrow a share and sell it with the outlook that the share price will decrease and they will be able to buy it back at a lower price and then give it back to the original owner.

Traders typically use events like interest rate changes and significant news to profit from the short-term effect they may have on a share price or a market. Trading strategies can range from scalp traders who hold a share for seconds or minutes to position traders who will hold a share for months to years. 

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