Why Trading is Better Than Investing

Written By: Ehsan Jahandarpour

why trading is better than investing

Trading and investing are very different in that they require different strategies. Traders profit from price appreciation and depreciation, while investors focus on studying a company carefully. Traders can also take advantage of leverage, which allows them to act dynamically and take advantage of price fluctuations. However, investors should keep in mind that trading can be stressful. Moreover, traders are responsible for figuring out how to time their decisions in order to achieve the best possible results.

Trading allows you to profit from both price appreciation and depreciation

There are two basic types of price movements in the share market: price appreciation and price depreciation. Price appreciation occurs when the market value of an asset rises more than its cost, while price depreciation occurs when its value decreases. In trading, you can profit from either type of price movement.

Leverage affects profits and losses

Leverage is a trading tool that allows you to multiply your investments and trades. It can dramatically increase your profits and losses, but you should be wary of its risks. You should only use small amounts of real leverage when you are trading, as this allows you to have more breathing room and minimize your capital loss. If you use large amounts of leverage, you may end up wiping out your trading account in a short period of time.

Leverage is a ratio or multiple that the broker chooses for you. For example, if you have $10 in your account and want to trade with $100 worth of Apple shares, you can use leverage of 30:1. This means that for every $1 you put into your account, you can place a trade that is worth $30. However, the higher the leverage, the more likely you are to lose.

Long-term investing vs trading

Long-term investing and trading are very similar in that both involve purchasing an asset and holding it for years or decades. However, investing allows for greater diversification in terms of investment type and offers opportunities to achieve personal goals. In addition, investing creates a compounding effect, which means that your investment value can increase over time. Traders, on the other hand, buy and sell investments frequently and only look at short-term price movements.

Investors strive for long-term profits and seek to outperform the S&P 500 benchmark index. They aren’t concerned with day-to-day performance and usually expect to earn 10 to 20% annual returns that compound over many years. By contrast, day traders try to make profits every day and aim for triple-digit returns on a single stock. However, they must remember that short-term performance can be erratic and may result in a margin call or worse, a blow-up.

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