People engaged in the different markets are either investing or trading. Although they might seem similar to many people, there is a distinct difference between them. It all boils down to the methods used by either the trader or the investor.

What’s Behind Investing?

While the motive of both investing and trading is to build wealth from the markets, the methods they use are strikingly different. The goal of investing is to build wealth gradually over a longer period of time. Wealth building through investing usually involves building wealth through compounding. Profits and dividends earned are usually reinvested in order to further grow wealth.

Investing requires time. Investments are held for a certain number of years, even decades, where they are left to grow in value. Even while there may be some fluctuations in the market, investors usually try to ride out the downturns, hoping that the market will pick up eventually and their investments grow further in terms of value. Investors take the longer but generally less risky road to wealth building by taking positions for long periods of time to seek larger returns.

The Trading Difference

Trading, on the other hand, uses a faster method of building wealth in the market. It is usually characterized by faster and quicker market exchanges. Stocks are bought and sold in a matter of days, even in just a matter of minutes and hours. The aim of traders is to generate more returns than investing through frequent market actions. The aim is always to buy low and sell high. Bought stocks and assets are not held for long periods of time. They are made to circulate in the market once again, just at the moment when the trader sees an opportunity to earn profits. The lesser time it takes for the positions to profit and unloaded, the better it is for the trader. The traders usually deal with riskier positions and take smaller and yet more frequent ways to profit compared to investors.