1. Differences between Trading and investing
  2. Forex
  3. Despite the fact that trading and investing have the same ultimate goal-to generate profit in the market, the funds used to achieve this goal are significantly different. Understanding the difference between these two activities will allow you to focus on exactly what will help you succeed in your particular case. You can make the following comparison::
  4. The 100-meter race and the marathon are two disciplines related to running. However, they are radically different from each other. A sprint requires maximum speed in a short period of time, while a marathon requires running at a steady pace for a long period of time. One athlete can prepare and compete in both disciplines, but they need two different strategies to do so. The same approach applies to trading and investing. Your training and execution techniques must be properly aligned with your goals.
  5. Let's look at a few differences between day trading and investing.
  6. Trading frequency
  7. A day trader can enter and exit trades several dozen times a day, depending on the quality and quantity of trading signals. An investor can only make a few trades a month or even a year. An investor can select several stocks to work with over the course of a year, while a trader has to deal with hundreds of tickers over the course of a year.
  8. Time interval
  9. An intraday trader opens and closes a trading position in a single trading session, while an investor can hold a stock for years.
  10. Types of shares
  11. Day traders usually look for volatile stocks with high trading volume. This ensures that you can quickly enter or exit a trade and get a significant capital gain on your trading account. The day trader wants to see the price move, he is not concerned about what caused the hype.
  12. The investor usually focuses on high-quality companies that have a bright future. We can say that the day trader relies on the movement of the share price, and the investor on the company that issued these shares.
  13. Fundamental Analysis
  14. As mentioned above, the day trader pays more attention to the price movement and stock chart. Most day traders have little interest in free cash flow, profit, or other parameters. Therefore, they are more engaged in technical analysis (reading charts), rather than fundamental (studying financial indicators and the current state of the company).
  15. Since investors work on much longer timeframes, they have to study the overall health of the company. This can include studying information about the company's management, analyzing financial documents, reading reports filed with the SEC, and so on.
  16. Volatility / Stability
  17. Day traders are looking for opportunities that can make a profit during the day. For the vast majority of traders, a stock that moves a few cents a day is not interesting. Therefore, day traders are looking for volatile stocks.
  18. Volatility, which opens up opportunities for intraday trading, can be a red flag for investors. Investors want to see the stability of their assets. A stock that soars 20% one day and falls 10% the next will be interesting for the day trader, but it will be a nervous shock for the investor.
  19. Market participation
  20. A day trader needs to be engaged in trading all day long. A few cents up or down can cost him several thousand dollars if the position is large. Therefore, the day trader needs to constantly monitor their positions.
  21. Investors don't pay as much attention to the stock's intraday movement. Although they check their positions daily, they still pay more attention to long-term movements.
  22. Target profit
  23. Obviously, day traders and investors are looking to make money in the stock market. However, their profit targets will be significantly different.
  24. A 20% increase in the value of a portfolio per year is an excellent return for an investor, but this may not seem enough for a day trader who spends several hours every day analyzing the market and trading itself. Day trading is becoming the main job for many traders, so they need to generate enough income to live on. At the same time, the investor can consider the market as an additional source of income.
  25. External factors
  26. The price movement is influenced by many factors. Some of them have a long-term effect, while others have only a short-term effect. Traders are more interested in the factors that determine the price movement in the short term, while investors are more interested in those that determine the long-term state of the company.
  27. For example, a press release may cause a short-term price movement, but not have a long-term impact on the company.
  28. Risk tolerance and stop losses
  29. The risk tolerance threshold varies between traders and investors. Traders trim losses faster than investors. For example, let's say that a trader and an investor have long positions in the same stock. During the day, the price drops by 5%. This will be more than enough for the trader to close the position since today does not correspond to his vision of this action. The investor may not react to the same price movement in any way, as he plans to hold the stock for the next few years.

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