Many of you might get confused with the terms "Investing" and "Trading" and could not recognize the difference between these two terms. Let us understand the meaning and difference of both these terms-
Investing - It is about creating the wealth or generating the returns during the given time. Though there is no specific definition of time period but it is usually for the long term period. Hence Investing is done for long term period for generating wealth or creating returns.
Investing required skills and understanding of business model where you are going to invest your hard earned money. It requires an in-depth analysis of business and potential of revenue model to sustain for long run in cut-throat competition. You may need to read Financials of the Business, Vision and Mission Statement, Projections, Operational efficiency, Liquidity to meet day to day obligations and quality of Resource to take a calculative decision.
Trading - It is something creating the profit or earning money in short span of time by taking risky decisions, let say within a week time. It is more riskier than Investing and requires information about the business that will impact it today or within the week (in short run). Traders use such information to generate the profit based on the movements in price (upward or downward) due to such news.
Example - Let us understand both the terms with an example.
Ram did an in-depth analysis of a company, let say Reliance Industries and found that it has a potential to create wealth in next 5-7 years. Here, Ram thinks like a Investor and irrespective of the current share price, Ram invested his money for 5-7 years.
It is a case of Investing where Ram found opportunities in the company.
On the other hand, Shyam is a Trader and actively monitor the announcements and news about the company TCS. Shyam is doing sale and purchase of TCS shares which price is either moving up or going down based on day to day news, govt announcements, etc.
It is a case of Trading where Shyam is not intended to buy for long term rather he is just try to leverage profit by taking risk.
Advise : Trading should not be done by new investors until they learn techniques, chart analysis and become familiar with the market conditions.
Happy Learning !!!
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