Sunday, November 4, 2012

STOCK MARKET BASICS - What is the difference between investing and trading?

COURTESY: INVESTOPEDIA

Investing and trading are two very different methods of attempting to profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Investors often enhance their profits through compounding, or reinvesting any profits and dividends into additional shares of stock. Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends and stock splits along the way. While markets inevitably fluctuate, investors will "ride out" the downtrends with the expectation that prices will rebound and any losses will eventually be recovered. Investors are typically more concerned with market fundamentals, such as price/earnings ratios and management forecasts.

Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.

A trader's "style" refers to the time frame or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:


  • Position Trader – positions are held from months to years
  • Swing Trader – positions are held from days to weeks
  • Day Trader – positions are held throughout the day only with no overnight positions
  • Scalp Trader – positions are held for seconds to minutes with no overnight positions
Traders often choose their trading style based on factors including: account size, amount of time that can be dedicated to trading, level of trading experience, personality and risk tolerance. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits.


24 comments :

  1. Sir,

    Please post an update on VADILAL INDUSTRIES based on the recently published results

    with regards,
    Imran, trivandrum

    ReplyDelete
  2. I still do not believe in these types of trader. I buy share with a target and when I see 10% profit, I book it thinking that the stock would fall again. If I had waited patiently i would have gained 100% profit. I think i am afraid of losing the profit if not booked. Please help what sould be done in this type of situation.

    ReplyDelete
    Replies
    1. That means , before buying a stock you are not doing some home work to assess the potential

      Delete
  3. Hi VP, Thank you very much for the scripts arranged in Alphabetical order.It's really very helpful.
    God Bless u always.
    Hema

    ReplyDelete
  4. VP,

    Whats your view on Premier Explosive result?

    Kushal

    ReplyDelete
    Replies
    1. As you are aware , during this quarter there was an explosion issue in one of their plants .That may have some impact and also the Monsoon effect may be there.

      Delete
  5. Dear VPji,
    Many many thanks for new implementation of arranging the recommended scripts in alphabatic order.
    Secondly , if you can consider the request of so many like me , you should reply for the scripts which has been recommended by you.So your precious times is used for more productive purpose.
    Because of your NATURE of HELPING by Virtue , your previous bad experience of loosing the money in stock market, you try to help to all those passing through this phase, but BELIEVE IT IS THEIR FATE OF THOSE PEOPLE TO PASS THROUGH THIS ROAD, AND AS YOU GOT THE KNOWLEDGE ONLY AFTER PASSING THIS GRUESOME STAGE , ESLE YOU ALSO COULD NOT HAVE BEEN WHAT YOU ARE TOADY !!! Your messge is loud and clear , IF YOU FALL , GET UP AND STAND UP !!!!
    God be with you

    with warm regards and due respect,
    Vakharia M J

    ReplyDelete
  6. WHO IS THE BEST AMONG POSITIONAL,SWING,DAY AND SCALP TRADERS...? MY GUESS IS ALWAYS POSITIONAL TRADER IN MOST OF THE CASES.... AM I RIGHT SIR???

    ReplyDelete
  7. Hi,

    What's the case with Tayo Rolls? The stock's at 71. Any change in the previous opinion?

    ReplyDelete
  8. VPSir.

    What bout KFA will it survive or onslaught for the investors.

    ReplyDelete
    Replies
    1. This is not the stock for investors :P
      It can survive and get to great highs, and it may fail...leading to no where...
      Somewhere I feel, that Mr. Mallya will be able to save the airline...but still it is too risky to earn money, when market has other options to earn same money at lower risk

      Delete
  9. Dear VP,

    What are your views on Sept 2012 qtr results of NILE Ltd. Company heavy Showing Loss for this qtr. Is you call is to hold on nile?

    Regards,

    Satya

    ReplyDelete
  10. Respected sirji,
    what is your current view after september-12 result for rossell inda & shakti pump.

    thanks

    ReplyDelete
    Replies
    1. Shakti pump is swinging from 56 to 60 since quite a time now. But if you hold for long, this is a good stock...as a trader, it is good to buy @54, and sell @60 .. until and unless it breaks out, which I think it will

      Delete
  11. dear vp sir,

    jk agri petition on demerger is upheld by calcutta high court. is this development positive or still any suspense ?

    kalyani

    ReplyDelete
  12. Hi Vp what is your view on a microcap called Crannex with a market cap of 3 croes Regards Raj

    ReplyDelete
  13. thanks for invaluable service to small investors. what
    are your views on asahi songwon? results tomorrow.

    ReplyDelete
  14. Whats your view on Cravatex ? FILA is gaining traction in India.

    ReplyDelete
  15. Hi

    I would like to know your views on Birla Cotsyn and Birla Power. Please help.

    ReplyDelete
  16. dear sir
    hi.sir can you give some informatiom about birla cotsyn india because the volume is 2 high from november.i heard that they complted phase 1.and from november they have strated phase 2.please sir

    ReplyDelete
  17. What your view about JSW Holdings - for long term and short term?

    ReplyDelete

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