When it comes to making money in the financial market, there are two main strategies: trading and investing. Trading is a shorter-term strategy where you buy and sell assets within a few days or weeks, while investing is a longer-term strategy where you buy and hold them for months or years. While both strategies can be profitable, trading has several advantages over investing. In this guide, we’ll explain five reasons why trading is a better option than investing.
Trading vs. Investing
Trading is the act of buying and selling assets in the financial markets. When you trade, you speculate on the price movements of assets and make money when your predictions are correct. This is done on crypto, stocks, or fx trading platform. You can trade stocks, currencies, commodities, and other securities in the financial markets.
The main benefit of trading is that it offers a higher potential for profit than investing. This is because you’re actively speculating on price movements and aim to make money from short-term market fluctuations. In contrast, investors generally buy assets and hold them for extended periods of time, only making profits when they sell at a higher price than they bought at.
1. Trading is less risky than investing
Investing involves buying assets and holding them for a long period of time, which means you’re exposed to the market’s ups and downs for an extended period. With trading, you only hold assets for a short period of time, so you’re not exposed to as much risk. For example, you can easily close your positions and minimize your losses if an unexpected event occurs. But, if you’re investing, you may have to wait months or years for the market to recover.
2. Trading offers more opportunities to make profits
In the financial market, there are countless opportunities to make money. However, with investing, you can only profit from price appreciation. With trading, on the other hand, you can profit from both price appreciation and depreciation. For example, if you’re bearish on a stock, you can short it and profit from its price decline. This flexibility gives traders a greater chance of making money in the market.
3. Trading can be done with a small amount of capital
To start investing, you need a large amount of capital as you’re buying assets and holding them for an extended period. This isn’t the case with trading where you can start with a small amount of capital. For example, with some brokers, you can trade with as little as $100. This is because you can take advantage of leverage. When you’re trading with leverage, you’re using borrowed capital from your broker. This allows you to trade with more money than you have in your account. For example, if you’re trading with a 1:10 leverage, for every $1 you have in your account, you can trade with $10.
Leverage affects both your profits and losses. So, while it does give you the opportunity to trade with a small amount of capital, you need to ensure you have the money should your trade not work out as you planned. Therefore, before using leverage, make sure you understand how it works and what is involved.
4. Trading is easier than investing
Investing requires a lot of research as you need to find the right assets to buy and hold for the long term. This can be a complex and time-consuming process. On the other hand, trading is much simpler as you’re only focused on making profits in the short term. All you need to do is find an opportunity in the market and trade it.
For example, if you want to invest in a company, you need to analyze its financial statements, competitive advantage, management team, etc. However, if you’re trading that same company’s stock, you only need to consider the factors that will affect its price in the short term.
5. Trading allows you to take advantage of market fluctuations
In the financial market, prices are constantly fluctuating. This provides opportunities for traders to profit from price movements. On the other hand, investors can only profit from price appreciation as they hold their assets for a long period of time. So, if the market crashes, they’re likely to lose money.
However, with trading, you can take advantage of both rising and falling markets. For example, if you’re bullish on a stock, you can buy it and profit from its price appreciation, or if you’re bearish on a stock, you can short it and profit from its price decline.
These are just a few of the reasons why trading is better than investing. If you’re looking to make money in the financial market, both strategies can be profitable. Make sure you understand all that is involved before you start trading or investing.