Trading and investing are often used interchangeably, but these are the two different approaches used to tap into the opportunities available in the stock market. These two terms can be differentiated based on financial goals, risks, duration, profitable directions, and strategies.

Let’s understand both the terms individually and in depth.

Investing

Investing is the act of gradually creating wealth over a long period. It involves holding investments for years or even decades to take advantage of interest, dividends, stock splits, and other perks along the way. Investors possess a well-diversified portfolio that may include stocks, mutual funds, bonds, or other financial instruments that they hold for the long term.

Trading 

Trading is the act of selling stocks, commodities, or other financial instruments more frequently. Traders are aimed at generating high returns that can outperform buy-and-hold investing. Traders buy securities at a lower price and sell them at a higher price within a specified period to make profits.

A trader’s style differs based on the timeframe or holding period of trading securities. Based on the timeframe, a trader can be a position trader (holding period varies from months to years), day trader (holding period differs from seconds to minutes without overnight holdings), or swing trader (holding period varies from days to weeks).

Let us differentiate the two terms and explain the procedure for how to open demat account along with a trading account.’

Differentiation 

Following are the quick attributes depicting the main differences between trading and investing:

• Price vs. Value 

Trading and investing both involve seeking profit in the stock market, but they pursue that goal differently. Investment refers to the employment of funds to achieve growth in value or earn regular additional income. The essential quality of investment involves waiting for a reward. On the other hand, trading guides to employing funds for quick returns with an increase in the stock price.

• Factors to make a buy/sell

Traders often focus on a stock’s technical factors like moving averages rather than the company’s fundamental factors and long-term prospects like price-to-earnings ratios and management forecasts. What matters to traders is the direction of the stock and how they can profit from the movement of stock.

• Primary Account

Trading account and demat account are the two main accounts that allow you to enter the stock market. For traders, the primary account is their trading account as they make frequent trades. On the other hand, an investor’s primary account is a demat account as they need to hold their securities for longer than traders. However, both demat and demat accounts are required for investing and trading.

• Costs 

When it comes to trading, traders consider the brokerage rate. Every broker charges a specific brokerage fee to process trade orders. Some may give discounts based on the number and value of trades conducted. In contrast, investors consider demat account charges.

• Strategies 

Investing involves buy-and-hold strategies. As the investment grows, returns also increase. On the contrary, trading consists of buying and selling securities within days, hours, or even minutes to make profits from the change in stock price. Traders tend to find the high-probability trading setups at the technical front and reduce losses with stop loss. While markets inevitably fluctuate, traders ride the short-term fluctuations in the markets, but investors need to learn to pass on downtrends to achieve their long-term goals. Investors expect that the investment prices will rebound, and they can recover the losses eventually.

If you want to be a trader, you need to choose your trading style based on your online trading experience, the time you can dedicate towards trading, and risk tolerance. On the other hand, the financial goals, investment horizon, and risk profile are the primary factors to go with investing in the stock market.

How to Open Trading Account and Demat Account

With an online trading and demat account, you can trade numerous securities. To open demat and trading accounts, you need to select the stockbroker after comparing demat and brokerage rates. Next, fill the online application form and accompany it with all required documents to complete KYC, like Aadhar card, PAN card, bank account statement, etc. Your broker will activate your accounts after verifying your submitted details and documents.