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What is the difference between trading and investing?

Johana Strakova
07/01/2023

Using trading and investing, a huge number of people in the world have built absolute financial independence. So in this article we will look at how trading and investing differ from each other.

The main difference is time. In trading we hold positions for a few minutes, hours or days while in investing we find a great company and hold the position for several years or ideally never sell it.

Trading is more time-consuming compared to investing, but it also brings a much greater opportunity for appreciation. Successful intraday traders aim, for example, at a profit of 2-3% per day, swing traders, for example, at 2.5-5% per week, etc. In this way, short-term traders mostly use leveraged products and so-called margin accounts, where they can use more capital in the short term, than they have

The time spent in front of the monitors can be customized by time frames and setting aside a specific time in the day when you will trade. You can trade different types of charts and so, for example, thanks to the daily chart, where a price candle is created in 1 day, you only need to check the chart once a day.

When it comes to investing, we have a long-term horizon, so here it is enough to check your investments once a month or every 3 months. The appreciation in investing is considerably lower, where the most successful ones move around 20% per year.

What to focus on?

In trading, the chart is especially important, while we can gain a statistical advantage thanks to technical analysis. Success in trading is generally around 50%, therefore successful traders focus on the so-called RRR (Risk reward ratio). This means that if you hit, you will earn more than if you miss. You can easily make 5x out of 10 shops and still be profitable.

In investing, the basis of success is the studied foundation, or the prosperity of the company (sales, profits, debts, growth potential…). The chart is the last thing we look at in this case. Success in investing can be around 90% if one can choose the right companies.