When it comes to the financial markets, what lies ahead is either the path of trading or investing. Both strategies are geared towards making money, but are inherently different in their approach, time investment and risk. To make it easier for you to decide what may be the best path, let’s look into each of these professions individually.
TRADINGTrading is often likened to a high-speed race. It’s quick, intense, and calls for quick decision making. Traders seek to capitalize on short-term price fluctuations in assets such as stocks, currencies, or commodities. Trading is mostly about the short term and rarely about long term. Some traders, known as scalpers, hold positions for just seconds or minutes, aiming to profit from tiny price changes. Day traders buy and sell within the same day, while swing traders may hold positions for several days or weeks to capitalise on short-term trends.
Trading cares less about long-term asset value and more about the direction of the market right at the moment. This is the reason traders strongly rely on technical analysis, which is basically the study of price charts, patterns, and the use of tools like indicators, RSI (Relative Strength Index), Candle stick pattern, etc making traders prone to market volatilily which makes trading risky. Traders need strong emotional discipline to handle the heat of making split-second trading decisions that can lose them thousands of dollars in the blink of an eye.
Additionally, frequent buying and selling lead to higher transaction costs, with brokers including things like commissions, spreads, and fees which can eat into profits. These costs can add up quickly, making it essential for traders to factor them into their strategies. There is long term and short term Traders and short term Traders are more than long term Traders. More details as you read further. Crypto Trading is much more riskier than Fiat Trading because of it volatile nature. Crypto is unpredictable currency, mostly bitcoin while fiat currency is stable currency so traders in bitcoin can't predict the nearest outcome of the market.
Pros of Trading1.With trading, there is potential for traders to generate significant returns in a short period of time by capitalizing on market volatily
2.Traders can easily adapt to market changes and switched between different assets and strategies as they rely mostly on technical analysis
3.Unlike investing, which relies mostly on price appreciation, trading allows for profit in any market direction. This means that even in a bullish market, traders can sell, profiting from liquidity grabs (retracement) before trend continuation.
4.In trading, there is availability of leverage (borrowed money) which can amplify traders return in a successful trade.
5. They used risk management tools like Take Profit and Stop Loss (TP/SL).
Cons of Trading1.Trading is riskier than investing because the market is basically engineered to prey on traders. Short term positions are vulnerable to stop hunts, fake breakouts and liquidity grabs
2.Trading requires significant time and effort because traders need a deep understanding of market dynamics to monitor market conditions and actively manage trades and also stay updated on news and events that will likely impact the market.
3.The fast-paced nature of trading can take a toll on traders emotions. FOMO(Fear Of Missing Out) and greed can cloud judgement and lead to impulsive actions.
4.While leverage can amplify potential profits, it also amplifies potential losses.
INVESTINGIf trading is a sprint, investing is more of a marathon. A more deliberate path to wealth, a slower path, focusing on your long-term story(the bigger picture) than hoping for a giant one-off windfall.
Investing is always about the long term. Investors purchase assets like stocks, bonds, or real estate hoping they will rise in value with time often through the sheer power of basic math: compounding. They are willing to wait years or even decades making asset owners generally less exposed to market swings and so lower risk than trading. Value investors look for stocks that are undervalued, growth investors look for stocks with high growth potential, whereas dividend investors aim stocks with regular dividend payouts.
Investments rely heavily on fundamental analysis to make decisions and they do so by digging into a company’s financial statements, evaluating its management team and it’s position withing the industry.
Contrary to trading, investors are less likely to come under pressure. What they need is patience as they know that markets will inevitably experience ups and downs.
Lastly, Investment requires less transactions which automatically leads to lesser fees thus making investment a cost effective option for low risk takers.
Pros of Investing1.Investing is less risky when compared to trading as it focuses more on long-term growth without fear of market volatility.
2.Investing requires less active management than trading.
3.Most investments, such as dividend-paying stocks and bonds, generate passive income streams, providing a steady flow of cash.
4.Many investments, such as dividend-paying stocks and bonds, generate passive income streams, providing a steady flow of cash.
5.Profits from investments are typically taxed at a lower rate than ordinary income.
Cons of Investing1.Investing typically generates slower returns than trading, as it relies on long-term growth rather than short-term price fluctuations.
2.While investments are considered more stable over trading, they're not completely free from the risk of losing value when overall market conditions are poor. Investors endure prolonged drawdowns, while traders can profit from both rising and falling markets.
3.Investing involves little to no leverage which can reduce potential returns when compared to trading.
Conclusion:
Bitcoin being a digital currency in the world has been used in the trading field for a very large scale but seconded to the US dollar in general. But from the perspective of the youth, bitcoin is the highest trading currency digitally. The profit is depends on the mathematical calculation of the trading. Mostly the tools.
Investment in the area of store of value Bitcoin is the highest even more than the US dollar because it is volatile and US dollar is stable coin. But it is the longevity of the investment that determines the investor's profit. You can still make profit within a short period of time but it will not huge as the long term investment.
Unlike the fiat that relies on the central bank and governments for its stability, Bitcoin is decentralised and independent on control which is both it's strength and its weakness.
