When you’re in the fortunate position of having a little extra cash in your bank account, you might find yourself looking at stocks. The stock market is a well-known solution for turning a small amount of wealth into a nest egg, or new opportunities for financial freedom. Although often, you won’t achieve amazing riches overnight, you can eventually make some significant cash with stocks.
However, if you’ve ever considered purchasing stock before, you’ve probably also noticed that there’s more than one way to get started. Namely, you can either invest in a stock, or start trading shares instead. Although this might seem like two versions of the same thing, there’s a big difference between investing, and stock trading on the exchange. Today, we’re going to take a closer look at what kind of securities and shares you can get involved with through these two money-building models, and what the benefits are of each option; stock trading vs investing, are they the same?
What Does it Mean to Trade Stocks?
Let’s start with perhaps the most exciting option for today’s financial customers. If you’ve been looking for a way to accelerate your income and make cash for the future, but you want to see results somewhat quickly – you’ll be better off looking at trading. Traders are the professionals in the stock exchange who are constantly looking for penny stocks to buy, new opportunities to take advantage of, and quick wins.
Some professionals move faster than others – with certain spenders only waiting for a couple of hours before they decide to sell a security and move onto something new. The idea behind this strategy is you’re constantly looking for small, but fast short-term wins. Your focus isn’t on the long-term prospects of the assets you’re getting involved with, but how the minor fluctuations of the economy and your market can influence your money-making opportunities right now.
What Does an Investor Do?
Investors do purchase securities and shares in the same way as traders, but they generally hold onto the assets they purchase for much longer. Usually, these individuals will work with financial advisors and examine the marketplace in depth to determine which companies or organizations have the best potential for growth long-term. Once someone in this landscape has chosen a security to spend their money on, they buy a specific number of shares based on their risk capacity.
The idea is to hold onto those shares for a significant amount of time – often a few years, even decades, before eventually selling to gain a profit based on how much the organization has developed over the years. In this environment, the focus is on carefully assessing the long-term growth potential of a company, and what it can deliver in the years to come, rather than straight away. Investors can hold a position for decades, whereas traders can move in and out of sales in a matter of minutes.
How Do You Choose the Right Option?
If you’re interested in getting involved with stocks either as a long-term or short-term solution, you’ll need to consider a few factors. First and foremost, it’s important to think about your current goals. Namely, are you trying to make money from your purchases or are you hoping to make a larger amount of cash in the long-term?
While there’s no guarantee that you’re going to make a profit with either strategy, there’s a better chance you’ll earn significant profits on whatever you buy if you can spend plenty of time waiting for the market to reach the right point. Investing is intended for those who have a great deal of patience, and the ability to envision what the future might look like for an asset.
If you’re looking for something a little more fast-paced, and want to start making cash right away, you’ll need a trading strategy. Although there’s more risk involved, due to the fast-paced nature of the environment, you’ll also be in a better position to see results on your purchases. The most important thing you can do if you decide to take this route is make sure you have the right training and knowledge in place to make informed decisions.
How to Invest or Trade Wisely
Whichever route you take, there are tips to follow to improve your chances of success. As a trader, you need to be realistic, and informed. Create a plan that determines exactly when you’re going to buy and when you want to sell and stick with it. It’s crucial not to let emotions or last-minute concerns get in the way of your strategy when you’re a trader, as this is often how you lose money.
It’s also important not to trade more than you can afford to lose. Go in with open eyes and a strong knowledge of what you can reasonably afford to risk. Remember that the margin of opportunity for traders will differ depending on their understanding of the market and ability to use certain tactics. The more you develop your skills, the better off you’ll be.
Keep in mind that trading strategies often come with various tax issues to be aware of. You’ll need to make sure you know how much tax you need to pay on your earnings to stay on the right side of the law. If you’re not sure, speak to a financial professional first. If you’re using the more long-term investing option, the best thing you can do is look at the money you spend as a long-term strategy for success.
You’re probably not going to see any massive changes right away, but you’ll need to be patient and keep watching your holdings to get the best results. Like a trader, you’ll also need a plan for how you’re going to buy and sell, and what kind of steps you’re going to take to make sure your portfolio is safe and diverse. Professionals can often help you with building these strategies if you’re not certain about what to do yourself. Both opportunities are excellent for making you a decent amount of money, you just need to ensure you have the right strategy in mind, and a plan for taking advantage of the assets you buy.