Sunday, July 24, 2011

Investing vs. Trading

When I first started participating in the Philippine Stock Market years ago, I usually hear and read about the term investing and trading.  Then there comes the investor and the trader.  Are they the same?
Well after a few years of participating in the stock market, I learned that people who are investing and/or trading in the stock market have the same goal ... that is, to build up wealth.  Of course this is the number one reason why we participate in the stock market, we believe that there is an opportunity to grow our wealth here.  The only difference between investing and trading is the method used in building up that wealth and this is where time and risk is involved.

Investing in stocks of a certain company is holding on to that stock for an indefinite time (mostly years) believing that the company have a great potential to grow and that we, as investors are riding with their growth.  A thorough study of the underlying factors which affect the company's business and future expansions is a must here.  This sounds complicated but with the help of experts it will be easier.  This is where some stock brokers is a big help.  Some stock brokers just like citiseconline gives information to clients as to what companies are worth investing in.  Citiseconline even have this program called Easy Investment Program or EIP which makes use of cost averaging technique which is suitable for new and long term investors.
Trading on the other hand is attempting to accelerate the pace of building up wealth by engaging in short term opportunities.  Here, market timing is required.  When to buy or when to sell is very important to maximize profits in trading.  Technical analysts are expert in this, they study the movements of market prices and forecast the future price trend using different charting tools. Again, some stock brokers are giving tips to clients as to when to buy or sell their stocks.

Whatever methods you will use in building your wealth, there is always a risk of losing money especially in trading, so in order to minimize our loss, an effective risk management plan should be developed.  Also remember that informations or tips coming from stock brokers are not perfect so wise judgement should be done.

In my case, I do both investing and trading.  In choosing the companies where to invest or trade, I rely on the informations my stock broker provides but when it comes to the timing of buying and selling, I developed my own trading strategy which goes hand in hand with my risk management plan.  So far, it's effective and I'm happy with the earnings I made from the stock market.

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