Maybe many beginners in the world of capital markets don’t know what the basic difference is between trading and investing in stocks. Even though we often find these two terms in reading, both articles and news in electronic media.
On this occasion, Hujanbatu would like to discuss more deeply the differences between these two activities in the capital market.
First of all, let’s make a comparison between the 100-meter sprint race and the 20-kilometer marathon. What do you think? Of course, these two sports are running, but there are some differences between these two types of competitions.
What are they? The first is the distance, from the name alone we can know that these two races have different distances.
Sprint races have a shorter distance than the distance participants have to go through in the marathon race. Second, in terms of time, marathons tend to take much longer than sprints.
Thirdly, the sprint race, of course, relies on running as fast as possible to reach the finish line. Meanwhile, the marathon race emphasizes running at a stable speed so that the stamina of the participants is maintained until they reach the finish line.
What about the simple analogy just now, you should be able to easily understand. Indeed, the two types of running competitions have several differences that we can easily distinguish, both in terms of distance, timeframe and method.
However, actually these two competitions have the same goal, namely to reach the finish line. Like trading and investing, these two types of activities are also very similar to the analogy you just read. For that we just go straight to the main subject of discussion this time.
Trading which in Indonesian means trading, namely the activity of buying and selling shares carried out by capital market participants. Meanwhile, investing is the activity of buying stocks for long-term investments. So here are the differences between these two capital market activities.
The Difference between Trading Vs Investing in Stocks in the Capital Market
Stock traders are stock traders who want to make profits in a relatively short period of time. Is it posibble? The answer is of course you can, because traders will take advantage of fluctuations in stock prices to make a profit.
Because both large and small companies will definitely experience price fluctuations in their shares.
There are no stocks that go up or down continuously, there must be ups and downs. Why did it happen? Because there is a law of supply and demand or simple supply and demand.
If more parties offer, the price will definitely go down. On the other hand, if more volume comes from the demand side, the price will push up.
Traders usually don’t really care about the company’s fundamentals because they don’t consider long-term profits.
For traders, the most important thing is being able to benefit from stock movements. Therefore traders tend to rely more on technical analysis than fundamental analysis.
Technical analysis itself is an analysis of price movements and patterns that have occurred in the past and believe will repeat.
Stock trading activity is very time-consuming and energy-intensive, for that it really requires a deep focus in doing it. It is true that trading offers a higher chance of return in the market than investing, especially in uncertain or sideways market conditions.
However, of course the risks involved in trading are also greater than investing.
A trader usually spends a lot of time monitoring stock movements, the goal is of course to capture opportunities that exist in the market.
In conclusion, trading makes more use of the ups and downs of the market or price action in the short term with as frequent a frequency as possible.
Meanwhile Investing requires more patience if you compare it to trading. How did it happen? This is due to the application of investing strategies to get profits for the long term, it can be in years or even decades.
For this reason, it is very important for an investor to choose a company whose future prospects are still very good and relevant.
Investing also has other advantages, namely investors can get dividend benefits from ownership share rights every year.
The opposite of trading, investing is very concerned with fundamental analysis rather than technical analysis. You can get fundamental analysis from financial reports, prospectuses and public exposures made by the company.
Therefore the ability of investors to be able to see the potential of a company in the long term is very important in investing. In conclusion, investment is more on the principle of buying and holding ownership for a long time in order to get big profits in the future.
Tips for Traders in the Capital Market
When trading, the first step you might be able to take is to look at the trading value. Try as much as possible when you enter a stock, the condition of the trading value is less than 10%.
This is so that you don’t experience difficulties when you want to get out of the stock if the conditions don’t match what you expected.
The second tip is to stick to your plan, most novice traders don’t apply this. Even though adhering to the rules of initial planning is very important in terms of protecting a trader’s assets.
For example, when they experience losses, most novice traders turn to become investors because they don’t want to experience losses.
As a result, the funds they should have used for trading were instead stuck in stocks that were experiencing a decline in price. For this reason, a trader must have his own trading plan, for example in determining the percentage of losses.
For stop losses, we recommend that no more than 5% of the funds you have, this is of course also useful for preventing deeper losses and maintaining trader psychology.
Tips for Investors in the Capital Market
When an investor makes an investment, the first thing he must have is financial goals or financial goals. The second is to determine in what time frame the investor wants the goal to be realized.
This step will be very helpful in terms of preparing an investment plan and in considering stock selection.
The next tip for investing is of course you have to have extra patience because your investment funds will process for so long before you reap the benefits.
Finally, you can also diversify your investments, the goal is that the risk you have will be divided into several investment instruments.
How? Do you understand the difference between trading and investing from the explanation just now?