Investing and trading are two distinct strategies for growing personal wealth. The simplest way to differentiate between them is by looking at time frames - investing focuses generally on long-term, buy-and-hold strategies, where an investor buys an asset with the intention to hold onto it for months or years to sell it at a higher price once it increases in value. On the other hand, trading looks at shorter time frames - usually days or weeks, but sometimes even just minutes - with traders attempting to capitalise on shorter-term price movements.
While both approaches have strengths and weaknesses, the most important factor to consider is which approach is best for you.
What is investing?
Investing has the purpose of buying an asset with the intent of reselling it at a later stage. This allows you to enjoy a profit through its value appreciation over time, thus growing your wealth.
As mentioned earlier, investing is geared towards a longer period of time which could mean a month, a year or even a decade. Some investments also have added benefits of paying out passive income, with some examples including shares that pay dividends, real estate that pays rent, or even yield-earning crypto wallets .
What is trading?
Trading in the financial world is defined as the buying or selling of stocks, commodities or currencies for profit. It is geared towards shorter timelines, with some trading styles holding positions for days or weeks and others that jump in and out of trades in a matter of hours, minutes or even seconds.
In these time frames, every fluctuation in the market is seen as an opportunity to make money, and many traders trade both when assets increase in value (trading long) and when assets fall in value (trading short).In a long trade, you would buy an asset, wait for it to rise and then sell it to make a profit on the price difference. In a short trade, you would sell the asset, wait for its price to fall, and then collect a profit from the difference in the price drop.
Investing vs trading
As we saw above, there are a few fundamental differences between investing and trading, and considering these various factors is important to choosing the right strategy for an investor.
Time commitment
The first difference is the amount of time you are willing to commit to your portfolio. Investing requires less active monitoring, because your goal is a long-term increase in value, rather than day-to-day price fluctuations. Considering this, you would probably only need to check your portfolio once a quarter to see if it is on the right track. On the other hand, as a day trader, your targets have very specific entry and exit points and it is crucial to actively monitor your live trades to make any necessary adjustments, as markets can sway drastically in short periods.
Active vs passive income
How much time are you willing to commit to growing your wealth? Are you trying to make investing your primary source of income, or is this just a side hustle? These are the types of questions you will need to ask yourself as the time you are willing to put into your investments will determine the type of investor you will be and the type of goals you are trying to achieve. Trading is more of an active job while investing tends to focus more on passive income or future profits.
Skill level
Investing is a much safer option for new investors to adopt because other than the initial purchase, nothing more needs to be done other than to wait for the asset to grow with time. Investing also relies more on a fundamental analysis, where you assess whether you believe an asset will perform well in the long run based on the health of its financials are and its future growth prospects.
Trading relies on technical rather than fundamental analysis. It involves studying charts, using indicators and analysing the various factors that affect both the market price and volatility in order to predict future patterns for potential earning opportunities. Given the complexity of technical analysis, it implies that a trader will need to have a more intermediate skill set to ensure consistent regular profits.
Emotions
Both investing and trading take discipline to be successful. However, investing is often less emotionally taxing. Investing has more of a ‘buy and forget’ mindset; the longer timelines make the downtrends that occur in normal market movements easier to digest. As a day trader, if you cannot put your emotions and excitement to the side, you may make bad decisions that could result in a loss of capital. Your ability to set aside the excitement of gains and fear of loss will determine which style is best suited for you. Without the correct education, the emotions of fear and greed have a tendency to be amplified, which leads to costly mistakes.
Risk level
Given the longer timelines involved, investing is generally considered a lower risk as the anticipation of a long-term rise overcomes market dips. In addition, certain assets benefit from the effect of compounding interest and dividends, which, when there is a short downturn, may even out your investment. Investing is often not leveraged and daily market fluctuations rarely impact or have a negligible effect on the long-term hold.
Trading is considered high risk and involves fast decision making in fast-moving markets, and is often leveraged for higher potential gains (which also leads to higher losses). In these short time frames, markets are very volatile and wrong decisions could result in loss of capital.
Profit potential
A long-term investment is expected to return between 10% to 15% per annum, whereas seasoned traders can expect to make between 8% to 10% return on their investments per month.
Final thoughts
Whether you choose to invest long term or day trade, it is always important to be comfortable with the amount of money you choose to start with. Knowledge is key, and it is always recommended to do your own research. Starting your portfolio with long term investing can be easier to navigate. It can help you mitigate the risks of daily market fluctuations whilst you focus on a general trend in the long run.
With every market movement being an opportunity to trade, the rewards can be very high given the short timelines and high volatility. However, changes can be drastic, and gains can quickly turn into losses. When trading, it is important to remember that market swings and fluctuations can be significant, and there is also a very real risk and high potential to lose all capital.
Understanding the right approach and possibly merging both methods are key to a diversified portfolio. It is important to educate yourself on where you are investing your money, and learning technical analysis is a fantastic tool to make informed decisions.
Where can you start investing?
One of the easiest ways to buy and invest in cryptocurrency is to use the SwissBorg app. The SwissBorg app is a unique cryptocurrency ecosystem that allows you to buy, sell, exchange, grow and hold your crypto assets in a simplified way.
SwissBorg’s state-of-the-art Smart Engine takes the guesswork out of investing. By connecting the Binance, HitBTC, LMAX and Kraken exchanges, the Smart Engine finds the best execution route each time, meaning you always get the best price from multiple exchanges.
In addition to this, with the SwissBorg app, you have access to live token and coin analysis to help you make the decisions on your next asset purchase.
Grow your investments with Smart Yield
The SwissBorg app makes it easy for you to put your cryptocurrencies to work and earn you a yield every day, with yield wallets currently available on BTC, ETH, CHSB, USDC and BNB.
The Smart Yield wallet connects you to selected counter-parties with a full range of decentralised financial applications to create a best-in-class yield program. This ensures that you benefit from the best market opportunities, resulting in the highest return for the most acceptable level of risk. Your yield is automatically compounded and paid out daily, which means not only are you earning a return on your wallet balance — you are also earning a return on your yield.
Ready to start making your crypto work for you? Learn more about SwissBorg’s Smart Yield.
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