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Investing or Trading - Which is Better?    Bookmark and Share

So you want to invest in the stock market? Before you get started, there is a good deal to learn. One of the major decisions is which of the two major money-making strategies that you will use. You will need to choose between investing and trading.

You've probably heard a lot about both of these strategies, and maybe you're not quite clear about the differences or which strategy you should be using. To help make the decision a little bit easier, let's summarize some of the major differences.

Investing generally refers to a longer-term strategy that involves identifying quality companies and buying stock in those companies, and then holding onto the stock for an extended period of time, hoping that it will gain in value as the company's profits increase. Investors generally think that if you thoroughly assess a company before you buy its stock, that you don't need to worry about the short-term movement of its stock price. They think that they will be eventually paid off by the upward movement of the stock's price over the long-term.

People who invest typically do their homework and check up on the companies whose stock they own on a regular basis in order to make sure they are on the right track. In addition, most active investors constantly research different companies and scour the news to find new investment opportunities. In fact, some of the richest people in the world are investors.

Trading is a money-making strategy commonly used by those who think that it is possible to take advantage of short-term fluctuations in a stock's price. Traders don't typically worry as much as investors about the quality of the company that underlies the stock they are buying or selling. They are only concerned about their ability to spot a temporarily undervalued share price on which they can quickly capitalize.

In addition, traders tend to buy and sell stocks very frequently. In fact, many online stock brokers encourage trading because they earn a commission each time a stock is bought or sold, so it is therefore in their interest to encourage as much buying and selling as possible.

While we have described in clear terms the major differences between investing and trading, it should be noted that many people don't follow either of these strategies exclusively. One common strategy that people use is trading around a core position. This involves buying an initial amount of stock in a specific company and then buying more when the stock's price goes down to a certain level or selling after it goes up to a certain level. While it may not be possible to always sell at the top and buy at the bottom, using this strategy can help investors gradually leverage short-term price fluctuations.

So which strategy is better? With both investing and trading, there are challenges. They both require a lot of time. Trading involves a good deal of both upfront time and an ongoing persistence to find the short-term opportunities. On the other hand, investing requires a lot of time up front to research the stock to spot worthy investments, and also ongoing homework to stay up-to-date.

I choose to be an investor because it makes more sense to me. Ultimately, it is up to you which strategy to use. The important thing is that once you find a strategy that works, use it diligently and consistently. If you do this, success is likely to follow.

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