distinction Trading and Investing Explained
Introduction
What is the difference in trading and investing
Now what happens in trading is that you get profit after walking a little distance, but the path of investing is very long, in this you get profit after a long time and the difference between these two is time because in trading you can make profit in a very short time, you can make huge profit in a month, a week, a day or even in a few minutes, but in investing it can take some time, 5 years, 10 years, 20 years or even more to make profit.
Now you must be thinking here that if we can get money in a short time then why should we wait for a long time, so look, this is where the point is, to understand trading and investing because this is a very important thing, and it should be very clear to you before starting investing. Here I will tell you that a person can make money at one time.
One can trade and also be an investor, that is, one can do both, but he must know the difference between trading and investment. So, in this blog, we will not only understand trading and investing, but we will also discuss the major differences between these two and at the end, I will also tell you whether you should trade or invest.
what is trading and investing
Let us understand the concept of trading and investing. To understand this, I will give you an example.
example
Suppose a man named Babu Rao wants to open his own mobile shop. His shop was running very well. He used to buy mobile phones at a cheaper price than the market and used to make profit by selling them at his shop. His business was running well but after some time, another shop of Total Seth opened in front of his shop and he used to sell the same mobile phones at a cheaper price than Babu Rao's shop. That means, the phones which Babu Rao used to sell for Rs. 10,000, Total Set started selling the same phones for Rs. 9,000. Now, since mobile phones are available at a lower price at Total Set's shop, why would people buy them at Babu Rao's shop? Because Babu Rao did not have any customers. So, he used to watch TV news all day.
All the customers were going to Total Seth. Whenever he saw the news on TV that he was selling Zee brand phones due to chip shortage, he was not getting any customers. Now here an idea comes in Baburao's mind because the demand for mobiles is very high among the people but due to lack of manufacturing its supply will be banned. Now here Baburao can do two things. The first option is that as soon as he wakes up every morning, he goes to Total Set's shop and buys all his phones for ₹9000 and sells them back to his shop for ₹10000 and earns profit.
The second way is that every morning he goes to Tuna Seth's shop and buys all his mobiles and stores them in his warehouse. Store them in the market and then sell them. Similarly, he should store those phones for a few months and as the price of this phone increases in the market and its demand increases in the market, he can sell those phones for Rs. 12,000 instead of Rs. 10,000 and earn more profit. Now look at trading and investing here. When Babu Rao was buying phones at low prices daily and selling them, he was doing trading but when Babu Rao stored those phones for some time and as their price increased, when he sold them, then it would be investing because he is not selling daily things, but he is doing it after some time.
Exactly in the same way trading and investing is done, only in the share market shares are bought instead of phones. Meaning, instead of buying phones in the share market, if we buy shares at a low price and sell them at a high price and make profit, then it is trading and if we buy shares at a low price and sell them after a few months, a few years, 10 years, 5 years, when the price of the share increases, then it is called investing. See, hear the major difference between the two is timing. I hope now you must have understood the concept of trading and investing. If not, then you will definitely understand further.
what is investing
Now see what happens in investing, people look for shares of good companies and as soon as they find a company which will generate good profit in future and perform well, they do fundamental research on that company and find out whether this company is worth investing in or not, if we invest money in this company, will it grow or not?
If they get answers to these questions, then they invest their money in that company and that company launches its new products with the money of these investors, expands its business and hires new employees so that their production can increase so that they can make more products and earn more profit by selling more things and when they get more profit, then to make their investors happy, they give them a small part of the profit. This small part is called dividend because see, the investor What happens is that if someone invests for the long term, then he gets the reward in the end, but the company keeps its investors happy by giving them a little dividend in between and by giving them a little share of the profit.
This means that an investor earns a lot of profit in the long term, but he also gets a little dividend in between which is a relief for him. And I will tell you that there are many investors whose dividend income is in lakhs and crores.
what is trading
On the other hand, the traders who trade in trading do not care about what the company does, whether the company has made a profit or not, how is the manager of the company, how is he.
A trader does not pay attention to fundamental analysis, he pays attention to technical analysis, he pays attention to chart analysis, he tracks the price of the stock, when the price of the stock is falling and when it is rising, he adds opportunities to it, meaning the work of a trade is such that every morning he opens the market, picks up the share of any one company and tracks the movement of its price, if after doing technical and chart analysis he feels that the price of the stock will increase, then he buys it at a low rate and as the price of the stock increases he sells it and makes a profit, whereas investment What happened was that the investor buys the stock at a low price and then sells it after many years when its price increases. Now you must have understood how a trader trades and how an investor trades.
difference between trading and investing
Let's talk about the difference between these two in detail. First of all, the difference was of time. Trading is a short-term process, and investing is a long-term game. Apart from this, if we look at the risk, then there is a lot of risk in trading, whereas the risk in investing is very low. Now it is not that there is no risk in investing at all. It is possible that the share price may fall in the short term, but if you choose a good company, then the share price of that company will definitely increase in the long term and due to this, the risk in investing is reduced a lot. Trading is done because it is a kind of game. We decide among ourselves to play a game of mole and say that if heads come then you win and if tails come then I win. So, look, this is a kind of game, and the same thing happens in the stock market, only instead of two people, many people come there. And instead of talking about the price of the lion, they talk about increasing it, which means there are many people, out of which some people guess that the price of the lion will fall, and some people put their money and say that the price of the lion will increase and where do these people invest their money? These people put their money with the broker, that is, the growth is zero, like they put their money with the broker.
Now see, if the price of the lion increases, then these people will win, if these people win, then the money of the people who have lost will go to the winners and the broker keeps a little commission from the winning money and not only this, but the winner also takes his share in the name of tax. Now look here, this tax and this government, they always want commission and tax, but who suffers the loss in the long term, only the traders, meaning the simple thing is that if you have made money in trading, then you will lose there. On the other hand, someone has lost his money, tomorrow when he makes money then it is possible that you will lose your money, that is why the trading race is over, now let's go back to our difference, now see one more thing.
This information is that most of the people do technical analysis to find out whether the price will increase or decrease while trading. Whereas if we talk about investing, here investors use technical analysis to find out whether the share price of the company will increase or decrease in the future or whether the company will increase or decrease in the future. Now look, there is another thing, stress. The person who does trading is always stressed. If he gets profit, then he will be happy the whole day but if he has a loss then the same thing keeps on going on in his mind the whole day. While trading, he is very stressed. If the share price falls, then he starts feeling proud and as soon as the share price goes up then he starts getting very happy. So, the meaning of this is that there is a lot of stress relief in trading whereas there is no stress relief at all in investing because this is a long-term process.
It is possible that for some time your share price may fall but if you have chosen a good company then you will be happy. Then after a month, after a year or after a few years the share price will definitely increase, and you will make profit in future. Now see, the trading person always sees relief in the big lion. But the investing person will invest comfortably once and then after some time he will see that his investment is good. Yes, my share price has increased or fallen so much. Then he will close it again because he does not want to sell it. He has invested for such a long term. And then after some time he will open it again and see that yes brother, today my share price has increased. He will see less, and he will have less tension. But the trader is always tensed.
Even after making profit and after closing, obviously there is another question that whether there is more money in trading or in investing. Now look, the answer to this question is very difficult because in trading you can earn a lot of money in a very short time but in investing, how can you make so much profit in a short time, no one can even imagine because in investing, compounding has shown its effect, and the money keeps increasing and becomes very big. If we talk about trading, then one plus point in trading is that you can do trading even with less money, that is, you can generate profit even by investing less money, but if we talk about investing, then you cannot earn a lot of money by investing only thousand or two thousand. You can earn a profit of ₹ 5000 by investing thousand or two thousand in trading, but as I told you, there is a risk here.
In trading, there are chances that you may lose thousands of rupees but in investing, your thousands and 2000 rupees may reduce a little. If you have bought a very bad company, then it is possible that your money may reduce a little, but it will never end completely. If it falls too much, you can send it. So, trading is very risky, but you can earn more money with less money in trading. Talking about expenses, if you trade, you will have to pay more charges but if you invest and you buy shares in delivery, then you will have to pay less brokerage, that is, you will have to pay less charges. As I told you in the above example that people do a lot of transactions in trading, so a lot of charges are imposed on them but in investing, once you buy a share, you sell it after many years, so the charge on it is very less.
If we talk about learning, can you learn trading quickly or can you learn investing quickly? Now look, both of these are very complex things, but I believe that learning investing is easier than trading because trading is very risky. Only those who are professionals in trading can make money and those who are new, 90% of the people lose 90% of their money in both. Now if we talk about brokerage charges, whether it is trading or investing, the brokerage charges in both are different, every broker charges differently according to his own. If we talk about trading, here the brokerage charge is from 0.03% to maximum ₹ 20 per transaction. Those who have a plane from thousand rupees to ₹ 2000, who want to buy, but you will not be charged brokerage for your lifetime, but the point to note here is that not only brokerage charges will be levied. Similarly, if you invest, i.e.,
if you want to buy shares in delivery, then the brokerage charge there also ranges from 0.03% to ₹20 maximum for the transaction. However, it was zero in delivery as well. There are some brokers who do not charge even a single rupee as brokerage charge, but with these brokers, you have to pay about three to three hundred ₹300 account maintenance charge every year. All these were brokerage charges which the broker charges. But apart from this, the government has also made the profit tax detector. If we talk only about trading, then about 28% tax has to be paid on the profit made in trading. If we talk about Investment means if we earn long term capital, then we have to pay 20% tax on it. Some of you might have a doubt that with how much minimum amount we can start trading or investment. So, look, you can start both trading and investment with a minimum of ₹100. In trading you can invest your money in future options, you can invest in internet trading. In investing you can invest your money directly in company shares or you can invest in fund issue. Now look here is one more thing.
It is to be noted that if you want to trade, if you want to invest in futures and options, then for this you must have an income statement, whereas in trading you do not need an income statement, just open your demat account and start investing. Let us end the discussion of trading and investing here and I know the answer to the question that what should you do, should you trade or invest. Now look, I am telling you very clearly here that if you are new to learning the stock market, then do not go towards trading at all. You will think that by investing ₹ 2000 you will make ₹ 5000 and then you will make 5000 ₹ 1 lakh and then 1 lakh ₹ 1 crore, by doing this you will earn a lot of money.
This does not happen if you are new to the stock market. Of course you may make some money at first, but after that you will definitely waste your money. And that is where you will get motivated. So first learn the basics of the stock market. For investing, buy shares in delivery and track their movement. Gradually, when you start getting experience, you will gradually know how the stock market works, then you can gradually reduce your investment in trading, but do not start trading immediately. Here you should keep in mind that when you are learning trading, do not invest too much time and money in it. You have to start with less money in trading and as you gain experience, you can increase your money. Here one more thing is to be noted that in the beginning, when you are learning trading, choose a broker whose user interface is easy and there is no account maintenance charge or platform charge and whose user interface is so good that you can trade whenever you want. Or if you invest, your side may get crushed, and your money may get stuck
Conclusion
Trading and investing are two different approaches to making money in the stock market. Trading is focused on short-term earnings, where you make quick profits, but it comes with higher risks. On the other hand, investing is a long-term strategy where you study growth, and the risk involved is lower compared to trading.
In trading, you need to pay daily attention to the market and perform technical analysis. Whereas, in investing, you need to conduct fundamental analysis of the company, and you typically select good companies to invest in for the long term.
If you're a beginner, investing is a simpler and safer way to start. Trading requires more knowledge and experience, so it would be best to first learn investing and gradually explore trading as you gain experience.
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