Investment vs Trade: The Differences To Acknowledge For Better Profit

A financial market is looked upon by both investors as well as traders to gain an advantage by the means of sharing and buying financial assets with utmost security. The financial market broadly classifies the terms that stand for a marketplace where bonds, currencies, and equity are traded off. The financial market serves as a connecting link between investors and collectors by joining them with capital. The two different aspects of taking part in the financial market are Investors and traders. Investors look out for the opportunity to invest in an eligible place, whereas traders lookout to trade their part with increased value. The basic definition and other useful details about both parts are shared below.

Investment
Things to consider before investing
Points to remember for successful Investment
Trade
Things to consider before trading
Points to remember for having a successful trading
Investing vs Trading

Investment

Investment is defined as putting money into financial schemes, shares, and properties to achieve higher profit. It can also be considered as purchasing an item with the thought of selling it in the future to gain an extra from its increased value. In other language investing means allocating money with the expectations of some benefits or returns in the future. The return can either be counted as a benefit or can turn into a loss. Investors generally expect more return from riskier investments. If a low risk or low investment is made, the return is also generally low i.e. Low investment gives low profit.

Things to consider before investing

Risk

Risk is an essential point to consider before investing. Every investment is prone to some level of risk. There can be a high chance of losing some of the whole investing amounts before its outcome.

Every person gives a different response to ‘risk’, and the best reaction is noted from previous similar experiences encountered. Most investors or consultants suggest that you should exit a financial investment when the investment value is scrapped to 80%.

Return

There are two types of returns on financial investments, Assured Returns and Variable Returns.

Assured and variable returns are now replaced by Least Volatile and Highly Volatile returns. The least volatile financial investment includes parts like debt instruments and small saving schemes. Whereas, Equity, Gold, and real estate are counted under Highly Volatile investments. The only ‘risk’ free return is a fixed deposit return. Investors should decide the percentage of exposure in the Least and Highly Volatile investment.

Taxation

Taxation is the most important point of financial investments. Taxation benefits can be reversed under specified conditions. The Short Term Capital Gains (STCG) for an investment period under three years are taxed at the individual slab rate, but the Long Term Capital Gains (LTCG) are taxed at 20% plus surcharge and cess with indexation.

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Income source

Income and source of income are also important in investment. Salary may be a more stable source of income than self-employed or businessmen persons. Families with more sources of income can be more secure compared to single-income source families. The double income family saves more and more saving means more investment.

Knowledge of finance

Investors should know financial aspects before starting with the basic process. As blind investment is suicidal. Hence, taking advice from knowledgeable persons and experienced people is the best way to start followed by a few searches on the web.

Points to remember for successful Investment

Make a financial plan

Before making any investments, one needs to be fully aware of the financial background and the expectations from it. There is no guarantee of getting benefits from each investment. Few investments can turn into tremendous victory whereas some can prevail as a failure. It's very essential to make a financial plan before starting with investment planning.

Taking risks.

Besides all investments, there is some sort of risks. Risks like losing all or some amount of money can also occur and some similar situations can also prevail. However, the higher the risk, the higher returning benefits.  Hence, it is essential to consider all risk factors before investing.

Avoid fraud investments

Some investments use high publicity news to give assurance of more profit. Before trusting such options, it is more recommended to get an additional inquiry done from related persons.

Always maintain an emergency fund

Always put some savings outside the investment to cover an emergency. Emergencies can be situations like loss of investing amount and its notable profit. At those moments, emergency funds can come in handy.

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Be up-to-date

Being up to date about financial assets plays an important role in investments. Keeping an eye on the current financial investment assets makes the investment better. As for those lagging in being up to date can cause them great misfortune of losing their investing amount due to inappropriate knowledge.

Trade

Trade involves the purchasing and selling of goods and services with compensation paid by a buyer to a seller. Trading refers to the exchange of securities through sale and purchase. On the other hand, we can say that trading is buying, selling, or exchanging assets. The financial market consists of the trading of securities such as shares, currencies, commodities, and derivatives. The trading market aims to make a profit by buying at a lower price and selling at a higher price within a short period. A trader can be anyone from an individual investor to a global institution. We can trade directly or with the help of a broker.

Things to consider before trading

Risk

Trading is riskier than investing. Market risk is the major risk of trading and is out of anyone’s control. Market risk is bound to rise or fall, but knowing the risks and making a market plan could save you from losing your money.

Profit

Trading is more profitable than investment. Trading provides one with the option of earning extra credits without any set limits. Indian stock market is one of the highest liquidity markets where people can make any amount of money. Profit depends on the purchase and sale of desired stock. We can say the profit depends upon the stock market value.

Points to remember for having a successful trading

Keep an eye on the market

Trading wholly depends on the basic propaganda of the market, i.e. demand and supply. Before trading, one must learn the basics of the stock market by keeping an eye on financial news, the price range of stocks, and taking up a course on the stock market are all excellent ways to become an efficient trader. Online stock trading simulators help to learn online trading efficiently and accurately.

Make a plan

To become successful in financial goals, it is better to make a strategic plan. Since the trading is riskier, advance decisions should be made on options like the last limit of investing, eligible loss amount, etc. The practice is the golden key to becoming a successful online trader.

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Trust

Trading is all about knowing the market and how the market is changing. As a trader, one needs to be fully confident in their strategies. Most of the profits can be earned through a personalized strategy applied at the perfect time instead of going ahead with the option of following others' plans in trade.

Holding the stocks

One can buy stocks and hold them for better profit. The holding of socks may help them with more profit because of the long-term purchase of high-quality stock at a low price when their demands go up. However, it is always applicable to some amount of risk due to the involvement of uncertainty.

Investing vs Trading

Now the most important question is, which one is better? Investment or trading? It is very difficult to choose which one is better because investment and trading are two different aspects of finance. However, the guide shared above can help one determine a better option. If someone wants to take no risks or low risks and avoid volatility, investing is better for you. You will get an 8% to 10% return annually. Investment means short-term wins and can get fewer several losses. If someone is more of a  risk-taker and would like the chance to earn money in a short time, trading is considered the best option for them. Trading can be a thrilling way to earn quick money and may also lead to big losses.

Conclusion

Investing stands for buying any stock or product to create wealth. Trading means purchasing and selling products to make profits. Both the methods give a similar output of generating profit. However, they both vary in their processes ad risk factors. Investing is typically for those looking out to create wealth within some interval of time and trading is generally for those looking out to generate profit in less amount of time.

FAQs

what is meant by financial investment?

Financial Investments stands for the fixed amount sided to gain some percentage from it at the speculated interval of time.

Which are online platforms available for investing?

Some of the online platforms for investing are eToroeToro, Fidelity Investments, E*Trade, etc.