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What Is The Difference Between Trading And Investing? Why Many People Practice Position Trading

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What Is The Difference Between Trading And Investing? Why Many People Practice Position Trading

November 17
08:41 2021
Everything you need to know about the difference between trading and investing and the lure of position trading.

Trading and investing are the common methods often used in an attempt to make profits in financial markets. In both cases, individuals should take part in market participation to make profits.

Generally, investors are individuals who seek to have more significant financial returns within an extended period through the process of buying and holding. On the other hand, traders take advantage of the rising and falling market prices to enter and exit their positions within a short period with smaller and more frequent profits.

In simple terms, investing is a long-term strategy of gaining financial stability, while trading is the short-term approach that seeks to maximize daily, monthly, quarterly, and yearly returns.

Investing

In investment, the involved parties have the objective of building wealth gradually over a more extended period by buying then holding portfolios of mutual funds, stocks, Cryptocurrency, basket stocks, bonds, and other profitable investment instruments. Profit is recorded with the compounding of the invested funds plus the reinvestment of the accruing profits in purchasing additional stocks.

Investment typically takes a very long period ranging from months, years, and even decades. It works over an extended period to take full advantage of various peaks that happen on rare occasions.

Price fluctuation is a norm that markets always face, but for the investors, the downward trend is their favorite. They expect a period when the prices will bounce back high, and it will be their time to recover bountifully. If you want to be an investor, you should be good at managing forecasts and price-to-gearing ratio calculations.

Trading

Everyone in the world is part of trading. Trading is the activity that entails frequent transactions like the buying and selling of commodities, stocks, cryptocurrencies, or any other instrument. The goal of trade is to generate returns that are more than what is gained from buy-and-hold investing. For example, while the investors might be content with the 10% profit annually, traders might seek even beyond more than 15% profit every month.

The trading profits are sourced from buying commodities at lower prices and selling them to the customers at reasonably higher prices within a relatively short period.  The reverse version is also trading; you can sell the items at higher prices and later cover the cost at lower price.

Trading comes in four different strategies; scalping happens within seconds to minutes, day trading takes a maximum of one day, swing trading happens for several days or sometimes weeks, and the most known position trading happens for months to years. Position trading is the trading strategy practiced by various business entrepreneurs in various parts of the world.

Notably, traders have the freedom of choosing the trading style that suits their preferences. Factors like account size, trading experience, risk tolerance, amount of time dedicated for trading, and trader’s personality play a crucial role.

Why Many People Practice Position Trading

Position trading is the most extended type of trade. Consequently, it has a tremendous profit potential than the other varieties, but many risks are involved. History has it that many famous traders made a fortune by implementing the strategy of position trading. For example, Joss Ross is one of the traders with the longest record of position trading (1991 to 2000). Joss opened the long-term S&P 500, which he closed with a profit margin of 16 million dollars.

Phillip Fisher is also a renowned position trader, followed by many admirers, including the great entrepreneur of the current time, Warren Buffet. Phillip held a significant trading position in Motorola shares from 1955, until at the age of 96 when he passed away.

The features of position trading include fundamental and technical analysis that helps in decision-making. It also gives proper guidelines on historical patterns and market trends. To be a good position trader, you should identify the proper entry and exit points of trade and know the stage to stop orders to prevent losses.

Most people prefer position trading because of the following reasons:

  • It’s a long-term trading approach that leads to robust gains
  • It is less stressful compared to short-term trading strategies. You don’t have to be there to monitor it every minute.
  • Position traders have more time to spend on other crucial transactions and professional activities that add a successful perspective to their work.


Conclusion

The difference between trading and investing has more to do with time. Trading is short-term while investing is long-term. In trading, the position trading approach is the award-winning strategy. It’s a long-term subspecialty that goes for months up to years. Position trading needs skills, or else things might turn harsh on your side, and you lack the ideas for making it a success. Finally, the trading subspecialty is thrilling because of the exciting profits. That is why most people are currently running to position trading.

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