Trading and investing are two different options to make a profit in the share market. Investing is a habit in which stocks are purchased and kept on hold for a longer period of time by which the price of the stock is expected to rise. Investors compound their profits by reinvesting the profits from the dividend, rise in the price of stocks to purchase more stocks.
Usually, the fluctuations in the market do not affect an investor as the prices fall but they eventually rise again without affecting them.The investors are more concerned about the fundamental analysis of the underlying share they are purchasing. They generally overlook the technical analysis. In the fundamental analysis, the actual price (intrinsic value) of the stock is determined. If it is trading below the intrinsic value, generally it is brought by the investor.
Whereas a trader purchases a stock with a short term goal. They purchase stocks in bulk for a short period of time and sell it at a higher price or they sell a stock at a higher price first and later purchase them at a lower price(known as short selling). They are more dependent on technical analysis. Usually, a lot of money can be made or lost in a short period of time. Traders maintain a strict stop loss which is predetermined in order to restrict their losses.
Based on the timeframe for which a trader holds a position they are classified into following categories:
- Position trader- They hold their position for months to years
- Swing traders-They hold position for days to weeks
- Day trader-They keep their positions open for the day
- Scalp traders-They hold their positions for seconds to minutes
Traders choose their trading style based on the account size, risk tolerance, the time they could dedicate for trading and their level of trading experience.