Do you know the difference between stock investment and stock trading? Many people misunderstand the differences, so many people are afraid of stock investments.
Stock investment and stock trading are different
Investment and trading is a financial method to add wealth with a period of time by buying and storing a portfolio or collection of assets. Even though both of them have the same goal of earning profit, it turns out that stock investment is different from stock trading.
The main difference is their time period; where the investment focus is time with a long-term tempo while trading is a short-term transaction. This forms a difference in strategy, principles and actions. To find out more, there have been discussions for each of these financial activities.
Stock Investments Performed by Investors
Investment is defined as the act of accumulating a form of asset with an expectation of getting a profit in the future. In other words, on the stock market, investment can be interpreted as the activity of buying shares and then being saved and resold later.
Investors are not too concerned about falling stock prices with expectations that prices will rise again later. Investors can be divided into institutional investors (banks, insurance companies and others) and retail investors (individual investors). One famous investor is Warren Buffet.
Because the term is long, investors will pay close attention to the factors that can affect the stock. They are not too affected by price fluctuations. Usually, what is purchased is a healthy issuer’s stock and good quality work with solid fundamentals. They focus on purchasing shares in the health of the company.
Investment instruments commonly chosen by investors are long-term investments such as property, industry (large and small) or can also be in the form of shares. In addition to the value of assets that will increase, investors also benefit from regular dividend distribution.
Buy and hold is the basic principle of an investor. They will save investments with a period of more than 1 year. They will only release their shares when their goals have been met or the quality of the issuer starts to deteriorate. Usually the type of investment chosen by investors has low liquidity. They usually use fundamental analysis such as price-earnings ratios and management forecasts to help identify company performance.
The risks involved in investing are counter party risks and the risk of partial fills. Counter party risk arises because when you need another party to buy assets when you sell them, and vice versa. While the risk of partial fills is the risk that occurs if your assets are only partially sold.
Analogy of investing in land
An investor who wants to invest his money in buying land, will choose quality land from an economic perspective by paying attention to the seller of land, certificates, location to the surrounding environment. Then, the investor will buy the land and save it until he retires (an example of an investment destination: retirement funding). Investors will use the land by renting it out and getting passive income in the form of rent.
Over time, the land will increase in value, and at the time of retirement, the land will be cashed. If there are sudden needs such as health costs and so on, then the investor will sell the land. The land will not be sold if there is a price increase of 1 year after the purchase or before the investor retires.
Stock Trading Performed by Traders
A trader is someone who makes use of price changes to make a profit. In trade language, the trading term is called trade. So a trader will buy shares at a low price and sell at a higher price. The time span is usually short term, can be 15 minutes, 30 minutes or a maximum of 1 week.
Trading is an activity carried out by traders and can occur on the stock market or bond market. Traders make far more transactions with frequency than short-term investors. If an investor is satisfied with a profit rate of 15% each year, a trader looks for the level of profit each month. One of the famous investors is George Soros.
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