What is the difference between "trading in stock" and "investing?

Question

I have no finance background and most people are saying trading in stock is not investing.

I would like to know what actual investing is and if trading in stock is not investing. Then what are actual investing methods?

Answer 1

Investing involves the purchase of assets with the intent of holding them for the long term, while speculation involves attempting to capitalize on market inefficiencies for short-term profit. Ownership is generally not a goal of speculators, while investors often look to build the number of assets in their portfolios over time.

Here's an article from Investopedia which defines various trading styles:

https://www.investopedia.com/university/how-start-trading/how-start-trading-trading-styles.asp

Answer 2

Investing is usually referred to for the longer term and Trading is usually referred to for the shorter term. But in reality there are many variations to both and sometime the two can become one and the same.

Some people think that investing means to buy your shares and hold them for the long term. By long term they usually mean for 20, 30 or more years - basically until retirement. I see this as risky because there is virtually no plans put in place, and you are basically hoping that the price will be higher when you finally sell them than when you bought them.

Some people think that trading only relates to day-trading, when you buy and sell the stocks in the same day. This is a simplistic and incorrect view. There are many more types of trading than just day-trading. Trading is usually referred to more regular buying and selling than investing.

However, it doesn't matter whether you are going to be investing or trading, you should have a written plan which spells out your criteria for buying, your criteria for selling and your risk management before you put any real money on the table.

My preference is to do long-term trading which is sometimes called active investing, as I aim to get as much profit out of a stock as it is trending. Once it stops trending or the trend reverses, then I would look to get out of the trade. I can be in a trade from as short as one day to over a year or even two years or more, if it continues trending.

Answer 3

Trading is the process of taking advantage of shorter-term price action whereas investing usually represents the purchase of a company with intent to hold for a longer-term.

For example, a trader may buy a chart breakout on AAPL and hold for $5/share whereas an investor may buy AAPL at a "good price" and hold for a few years.

Of course, there's a middle ground. You can be a long-term investor that takes advantage of short-term price action.