There are different ways to make money off of the stock market.
You can practically use hundreds of different strategies. Stock investing,
stock trading, and stock speculating may appear to be different words to the
same activity, but they actually have a lot of differences.
Stock Investing
Investing focuses largely on fundamentals, which usually are
long-term drivers of stock prices. The long-term investor waits out the zigzag
as long as the bullish outlook and the general market condition is favorable.
One good thing for investors is that it involves fewer
number of transaction costs and there are usually lower taxes. The downside is
that sometimes the stock can go into a correction (go down temporarily) or have
periods of lackluster performance. The long-term investor has to tolerate such occurrence.
Stock Trading
In trading, there are more activities that take place in the
course of a few days, weeks, or months. Traders may ditch stock losers right
away and cash out winner in order to lock in some profits before the next slide
in price.
Trading can entail higher costs because of frequent
commissions and short-term taxable gains. For trading, fundamentals are either
not a factor or at best a secondary minor factor due to the short-term
movements in a stock price are more geared to momentum and sentiment.
READ FURTHER: Pros and Cons of Day Trading You Must Know Today
Stock Speculating
Speculating is usually considered as a form of “financial
gambling.” As a speculator, you’re not investing in the conventional way. Rather,
you’re making an educated guess about which way the stock price will head. Speculating
is usually associated with a short-term time frame, though it can also be
long-term.
Overall, it may be said that trading is short-term speculating
and speculating is a much smaller dimension of investing.
The Time Factor
Before, it was easy to distinguish short term, intermediate
term, and long term.
·
Short term
referred to less than one year; some would even consider less than two
years.
·
Intermediate
term referred to usually one to three years or one to five years.
·
Long term referred
to longer than five years.
Recently, on the other hand, investors have become very much
impatient. For some, short term now refers to days. Intermediate term now
refers to weeks. And long term now refers to months and years.
If the investment performs well, the investor will sell it immediately
and move on potentially profitable investment. On the other hand, if the investment
goes down, the investor will sell it right way to minimize their losses to search
more better prospects elsewhere.
Psychological Factors
When it comes to investing, you sometimes have to be very
analytical. You can look at a stock and its fundamentals and then at the
prospects for the stock’s industry and the general economy. Then you can make a
good choice knowing that you’re not concerned about the prices going up or down
a few percentage points in the next few days or weeks.
Meanwhile, trading involves focusing on stocks that have the
ability to move quickly (enough volatility), regardless of the direction. Sometimes
traders look very little at the company’s underlying fundamentals. Seasoned
traders usually aim to make money more quickly and capitalize of crowd
psychology and market movements.
Stock trading is short-term speculating since the trader is
making an educated guess about something that’s not measured right off the bat:
knowing which way the market will move.
Conclusion
Investing, trading, and speculation are three different ways
to earn something out of the stock market. The strategy you will use will
depend on various factors, such as your risk tolerance, your lifestyle, the
amount of capital you can whip out, your risk management skills, and others.
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