Trading and investing both involve purchasing assets and financial securities, but there are key differences between the two.
Trading and investing are often used interchangeably, but there are a number of important differences to bear in mind.
Trading is more about generating returns from rising or falling markets, whereas investing is about shrewdly and prudently building a portfolio of assets to deliver returns over the long run, for example, for retirement.
As such, traders (retail traders and professional traders alike) rarely take a position in a stock to reap dividends, as they are usually looking to close their position before a dividend pay-out is made and, regardless, are typically looking to generate the bulk of their profit from favourable movements in the value of a company’s stock.
In contrast, individuals or institutional investors (such as pension funds, sovereign wealth funds or asset managers) typically invest with the aim of generating consistent returns over a much longer timeframe, and will therefore look to reap dividend payments to add to their returns. READ: How to Trade Forex in 2020: Strategies, Finding the Best Broker and More It therefore makes sense for investors to build a diversified portfolio of assets instead of deploying all their capital in one asset class or even just a single asset. Assets which are commonly invested in include gold, investment-grade government bonds, blue-chip stocks, exchange-traded funds (ETFs), and tax-efficient investment accounts, such as ISAs.
On the flip side, traders typically specialise in trading one asset class, such as Forex or commodities, and often focus on just a couple of securities within their chosen asset class to achieve specialisation.
