The advantages of trading over investing

Julie Brownlee, Fsp Invest, 08 Dec. 2014

Tags: trading, what is trading, trading vs investing, advantages of trading, investing and trading,

The vast majority of people start their investment journey buying shares. They’ll use a stockbroker to do this.

But some investors will find through the course of their investing that they want to take the next step and give trading a go.

So what is the difference between trading and investing? And what are the advantages of trading over investing?

Let’s take a closer look…

The difference between investing and trading

Investing usually involves buying securities such as shares or exchange traded funds (ETFs) or putting money into unit trusts.

The majority of investors are in it for the long-term. This means holding shares from anything from several months to several years.

Trading, on the other hand, has a more short-term view. This means having trades open for anything from a few hours to a few months.

Traders tend to use geared financial products. And it opens up the different assets they can trade too.

The advantages of trading over investing

When you trade using different geared financial products, such as single stock futures and contracts for difference (CFD), you make use of leverage. Leverage is when you use borrowed money to multiply your returns.

This is what makes trading more high risk to investing. Leverage has the potential to boost your gains, but it also boosts your losses.

By opting to trade, you can also short shares and other securities. What this means is you can speculate on the value of an asset falling in value. This is the opposite of what you do when you buy shares when you hope the value will rise.

Trading also opens up the amount of assets you can trade. You’re not limited to shares. You can trade currencies and commodities too.

So there you have it, the advantages of trading over investing.

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