what's the difference between trading & investing

@quentin_ubuma - 5 months ago - Forex Education

Some brokers offer dual options of "trading" or "investing" in different markets and this confuses many beginners. Can we discuss the difference between trading and investing and which is best for a beginner.

@weilo_daniel - 5 months ago

In investing you own something and actually take delivery of it but when trading you do not own the asset you just go into an agreement with a other trader (through a broker) such that if the price of an asset changes you will settle the difference in price with the other trader.

An example of trading is if your view of the market is that Tesla stock price will rise and the other trader has an opposing view, you both can go into an agreement that whoever is wrong will settle the other party with the difference in price between when you entered & exited the agreement.

Trading is not gambling because before you enter the agreement as a trader, you are expected to have done some calculations/analysis which gamblers don't do.

Now when you invest you buy and hold something and there is a change of ownership in your name. You can hold the investment for as long as you like without any overnight fees or penalties because it is yours. When you invest you benefit from all the privileges' associated with the ownership of that asset.

For example when you invest in a stock it becomes your own and you are a shareholder of the company who can vote during company meetings but when you trade a stock you cannot vote during company meetings.

@ozgal_galzo - 5 months ago

When most beginners see that a broker offers Stock CFD they think they are going to be investing in stocks and owning them but no, CFDs are an instrument for trading only.

Trading is mostly done with CFDs, Futures, Options etc. but when you want to invest you simply buy and own the asset meaning you will open a special investing account (demat account) where the asset will be dematerialized and stored in electronic form in your name.

Investing is for the long term (hence investors need to own the asset) while trading is for the short term (hence traders do not need to own the underlying asset).

@avrilbanks - 5 months ago

Trading is basically buying and selling in short time frames, like minutes, hours, or days. It involves trying to make profit from quick price movements. It comes with higher risk and you'd need to dedicate some time to it.

Investing is more long-term. You buy something and hold it for weeks, months, or even years, expecting it to grow slowly over time. It's generally lower stress and less risky, but also slower when it comes to returns.

If you're a beginner and you're not very conversant with the nuances of the market and don't want to be glued to the screen, investing might be the safer and easier option.

It can help you learn the markets without feeling overwhelmed and once you're comfortable, you can move on to trading.