Trading or Investing... a take!!!

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Investing and trading are the two most common terms in the stock market. So if you are into stock market what are you doing… Investing or trading?

People especially beginners when entering the market gets confused about these two terms.

To put in simply, trading is like your girlfriend or boyfriend who is more volatile in nature and you don’t know how long the relationship will be lasting; Investing is like your wife/husband who is more likely to stay with you in your bad and good times and give you happiness just to staying together.

While above was simple yet powerful example below mentioned are the key differentiators between Investing and Trading:-?

The Mindset

The first thing that differentiates between these two terms investing and trading is the mindset.

If you are the kind of a player who has the ability or knows how to play the patient game, then you are more suited or will better understand what investing is all about and how it works.

If you are the kind of a player that who likes thrilling and risky game, very much volatile or impatient in nature obviously trading you will opt for.

With capital as a basic need for both Investing and trading, you have to gather that kind of knowledge or experience. This comes over a period of time.??

In a nutshell, investing is more like a patient game where you have to wait for longer periods of time because you know deep down that playing that game is how you will be able to create wealth for yourself.

But with trading, you can only make a short-term profit gain that only can last for that moment of time or a little longer.

Stocks Analysis

When it comes to analyzing the stock, mindset as mentioned above plays pivotal role; depending on what you are aiming or planning to achieve analysis is done.

If your aim is to buy a company stock just for trading then you only have to do technical analysis. Technical analysis refers to a trading approach where past stock prices are analyzed to predict future returns.

On-Balance-Volume indicator (OBV), accumulation/distribution line (A/D line) , Average Directional Index (ADX) are few example of technical analysis. These indicators that you prefer to use to get signals when to buy stock or to sell. This is very crucial technical stocks analyses that are involved only in trading.

But, with investing there is no point to waste your time in the technical analysis. Instead, you have to do a fundamental analysis.

Fundamental analysis includes checking the book value of a share, Earning per share, dividend yield. This also includes what is the actual business that the company does and if that business is sustainable or future proof.

Risk involvement

Risk involvement in Investing and Trading is very much opposite. Trading is riskier than investing simply because of the volatility of the stock market.

But with investing it isn’t riskier as market may go down for a period of time but in the long run, it will give you profit (basis fundamental analysis).

To simply put it across if you do know where you are investing your money then it is not risky compared with trading.

Return

The capital gain or returns is also very different. In trading, you are less likely to gain a good profit, even more, you will end up finding yourself in loss-booking most of the time and you hardly can make a good profit back to back trading times.

To put it across in simple words, you can’t be so sure you are going to make a good profit or at least book a small profit on any given day when you trade.

With investing, you will get capital gain with compounding growth. This is because you have given that much amount of time which is required to build wealth.?

?Taxation

Taxation is another most important measurement that gives you a true sense of idea and insight of what is the best thing you can do to avoid taxation.?

If you have invested in equity shares sell these shares before 12 months starting from the date of purchase, it will be considered a short-term capital gain. Short-term capital gain in equity shares is taxable at the rate of 15% (plus applicable cess).

If you have invested in equity instruments and sell them after 12 months of holding starting from the date of purchase, it will be considered long-term capital gains (LTCG). Long-term capital gain in equity shares is taxable at the rate of 10% if the total LTCG in one financial year is more than Rs.1 lakh. Hence, if your cumulative LTCG is less than Rs.1 lakh in a financial year, then no tax will be payable under the long-term capital gain head.?

Conclusion

Above mentioned key points are good enough to make a clear understanding what is the difference between trading and investing.

Trading and investing is actually creating lots of confusion only when if you don’t know about the stock market or just entered into the market for the sake of interest in seeing others.