What is difference between trading & investing in stock market | Top Stock brokers in India 2022

 

Stock Market - Trading Vs Investing

In stock market world, basically there are two types of people investors and traders. Both investors and traders earn profits through market participation. Many people often think trading and investment in stock market are synonyms. But actually, it’s not the same. These both are the two very different approaches to make profit in the stock market. Trading and Investing are often used interchangeably. But both these aim towards different paths, goal might be same i.e., to earn profit. There is a lot of difference in both these terms, along with how money flows in the market. So, lets discuss about each of them briefly.

What is Investing?

Investing is basically a long-term process. It takes a long time to approach to the market and earns a larger return over a long period through buying and holding the portfolio of stocks, mutual funds, bonds and other investment assets. The main aim of investing is to buy the stocks, wait patiently, hold the stocks for longer period of time as possible. Investing is generally done for a period of few quarters, years, and even for decades, taking advantage of perks like interest, dividends, and stock splits along the way. As investing is a long-term process, there will be a lot of fluctuations, investors will sometimes see downward trend and sometimes upward. In investment, the decision to sell the stocks, depends on the company’s profit that are earned in longer period of time, not on the basis of short-term fluctuations.

Today, anybody can invest in stocks market. You do not need thousands and lakhs of rupees to invest. You can start investing at less than Rs.1000. You just have to create a demat account, which is very easy. You can open your demat account within few minutes through any online stock broker and some brokers don’t even charge any joining fee or maintenance fee.

Types of Investing

Active Investing – Active investing means fund managers or portfolio managers manages an investor’s money on their behalf and they charge some fee for these services.

Passive Investing – Passive investing means investors who wants to manage their funds and do not want to depend on a fund manager to do it for them.

Value Investing – Value investing is a form of investment where investors choose to invest in already strong and established firms. This type of investing basically aims at reducing the risk to maintain the value of investment.

Growth Investment – Growth investing is investing in companies that are expected to grow over the next few years. Growth investors generally look for high growth rates and return.

What is Trading?

Trading basically refers to buying and selling of stocks, commodities, currency pairs, and other financial instruments frequently, in order to make profit. The main aim of trading is to make profit in a shorter period of time. Trading is done on daily basis and requires a little experience about share market. Unlike investors, traders may buy the shares and sell them within few weeks, few days, a day and even within few minutes. The basic fundamental of trading is buying the shares when the price is low and sell them when the price is high. Investors may earn annual return of 10% to 15% and traders might earn 10% return each month. If we talk about major benefit of trading over investment is earning profit in shorter interval of time. But, with this advantage there’s very high percentage of risk also as compared to investing, you might lose your money. So, we can say, in trading you will earn a huge profit or will face huge loss. Huge profit and lose are part n parcel in trading whereas the chances of loss in investing is very less.

Types Of Trading

Intraday Trading – Intraday trading is the trading in which you buy and sell stocks on the same day. The trade must be squared off on the same day as per the rules and regulations set by SEBI.

Options Trading – Option trading is also known as derivative trading. It means that a contract whose value depend on the prices of an underlying asset.

Swing Trading – Swing trading means the traders purchase the stocks for days or week to gain from anticipated upward trend.

Scalp Trading – Scalp trading is a trading in which traders keep high margins in play to gain from smallest possible price changes.

Major Differences Between Investing and Trading

Time Duration

Investing is for long term, while trading is for shorter interval of time. The investors might hold their investment for quarter years, few years, and even for decades, while traders buy and sell stocks within few seconds, minutes or within few months.

Risk

The risk involved in investing is less as compared to trading because investor’s mindset is to buy stocks for long term and grow the capital, this helps them to avoid wrong decisions. The trader has the mindset to buy stocks for short period of time and sell it, due to which there’s high risk of losing.

Skills Required

Investing doesn’t require a lot of skill set but a basic understanding about the stock market, which stock will grow in future, which businesses are doing well within their industry, how long will it take for the company to grow. So, basically fundamental analysis is important for investing.

Traders require research and analytical skills to monitor the daily chart patterns, should have ability of adapting your market analysis to changing market conditions, along with focus, control and patience. We can also say that for trading a trader requires a knowledge of math, engineering and science rather than finance or business.

Return On Investment

Trading gives a higher return than Investing. Trading can give you huge return more frequently, might get better capital benefits from trading, on comparing with long term investment. An investor may earn annual return of 10% to 15% and traders might earn 10% return each month. In shorter period of investment, there’s a lot of stress and uncertainty.

Top Stock Brokers in India 2022

There are many brokers for online trading and investing in India. Some of the top and most popular stock brokers in India 2022 are as follows:

·       Zerodha.

·       Upstox.

·       Groww.

·       Angle One.

·       ICICIdirect.

·       5paisa.

·       Kotak Securities.

·       HDFC Securities.

·       IIFL Securities.

·       Motilal Oswal.