Investing and trading both involve seeking profit from the market, but they tend to pursue this goal in many different ways. Traders jump in and out of the stocks within days and sometimes even minutes, with the aim of short-term profit gains for themselves. They tend to focus on a stock’s technical factors instead of a company’s long-term prospects. What matters to traders is which direction the stock will move in the future and how he can profit from that move being made.
Investors have a longer-term outlook on this. They think in terms of years and most of the time hold up the stocks through the market’s ups and downs. Timing is the most highlighted difference between traders and investors, but their focus also differs very much dramatically.
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Investors study the potential for a company’s long-term growth or value, but traders take the advantage of small mispricings happening around in the market, such as when political uncertainty occurs in a foreign country, it temporarily pushes down the share price of a U.S. manufacturer. Then these so-called scalp traders get in this kind of a position for just a few minutes. Day traders are focused on the trading day, while swing ones invest for days or weeks.
If you’re interested in trading, here are some tips for minimizing risk:
- Create a plan that is supposed to dictate that when you’ll buy and sell.
- Stick to your actual plan. Even some of the experienced traders let their reasoning to hold a certain stock shift.
- Figure out how much money you can afford to lose on the deck, and don’t trade more than that. Do not trade more than 5% of your investable assets.
- Go in with open eyes. Use the most advanced and sophisticated algorithms to trade on any of the small inefficiencies present in the market.
- Know more about your taxes. You might need to take a tax deduction for trading costs, but you will need to also owe some of the taxes. Rates of the short-term gains range from 10% to 37%.
Nowadays, investing is a new way to build long-term wealth. A recent study shows that investing in the stock market can return millions of more retirement dollars instead of putting money in a traditional savings account or keeping cash in any bank of the world. Here are tips for doing it right:
- Create an investment plan for yourself to buy, sell and rebalance the holdings.
- Get prepared for the long haul ahead. You are going to need a lot of patience and discipline to stick through the ups and downs of the market.
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