Investing vs. Trading

Long-term vs. short-term

Or is there something else to the two?

When we get to the entrance the world of the stock market we find two doors to enter - one is labelled “investing” while the other is labelled “trading”. Depending upon which door we take, the market may appear very different - from the amount of time we spend there, how we decide to exit, how we look at our returns etc. Investing vs. trading - the words often appear together, some people even use them interchangeably, but professionals often distinguish between the two. And for anyone who plays in the markets, the distinction between the two is important.

Let me try to put my perspective on this topic here. To put it simply, here’s how I look at the two:

• Investing: Taking a stake in a company in the hope of making a significant return when you get the opportunity in the future to turn over your stake to a future investor.

• Trading: Taking a short-term position in a stock to benefit from short-term market supply-demand imbalances to make a profit in a short-duration.