Delicate Dance of Investing and Trading
Investing is very different than trading. They come from different ideas of how to make money on the markets. Both are valid and legitimate, but have different philosophical ideas.
Investing is looking for assets with value that will be enduring and growing over time. Investing at it’s heart is value investing, a term made famous by Warren Buffett the best value investor in the world. He looks for companies with good fundamentals, i.e. they are inherently good companies regardless of what the stock price says. In fact, he looks for these good quality companies with solid business models, but those which are being undervalued by the market.
Trading merely looks at the share price and tries to buy low and sell high. Of course, that’s what everyone wants to do. But traders do short term deals and they are looking for quick profits, and lots of them over time.
Certain markets attract more investing and some more trading. Options for example invites mostly traders. Mutual funds attract mostly investors. But it’s a delicate dance, because the money managers that run mutual funds are essentially traders.
Fund managers, especially those who run growth funds, ten to be aggressive traders. Although those investing in those funds would be considered to be investors.
The same happens in the forex market. Most of the players in this market are traders. Actually, thinking about forex as an investment vehicle can be a little difficult.
Even so, you can invest in the currency market through forex managed accounts. These are essentially mutual funds dealing in foreign currencies.
The differences can be nuanced and have very fine lines. But in any case, everyone has to decide whether they are primarily a trader or primarily and investor.
Investing is more passive while trading is more active. Maybe you will decide to be both at different times or both at the same time. Which one are you?
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