Trading vs. investing: Meaning, differences and which is more suitable?

Posted On: 02 January 2025

You may have commonly heard that the stock market is a good place for people to make money. In that context, you may also have heard of terms like ‘investing’ and ‘trading’, but they might sound confusing, especially if you're new to this environment. The good news is that both trading and investing have their own styles, goals and benefits in terms of making money. But, how do you decide which one is for you?

In this article, we will take a closer look at trading vs. investing in the simplest way. You’ll learn what each of the terms mean, the key differences between the two, and which investment approach might be suitable for you.

Table of contents

What is investing?
Types of investing
What is trading?
Types of trading
What are the main differences between investing and trading?
Who should invest and who should trade?
Trading vs. investing: Which is a more suitable option?

What is investing?

Investing is when you put your money into an asset, like stocks, mutual funds or bonds, to grow your wealth over a long period. Investing is all about patience and thinking about the future. Unlike trading, where the focus is on quick profits, investing involves waiting for your money to grow steadily over time.

For example: If you buy shares of a good company today and hold them for 5 or 10 years, you may see your money grow as the company grows. This is called wealth creation. Similarly, investing in mutual funds allows you to grow your wealth without you having to actively monitor the stock market.

The main aim of investing is to let your money work for you. By staying invested in good assets, you can benefit from compounding, which means your returns earn more returns over time.

Investing meaning: Investing simply means buying assets and holding them to gain profits in the long run. It is a smart way to achieve financial goals like retirement planning, education funding or buying a house.

Types of investing

There are different ways to invest. Here are a few common types:

Investing in mutual funds

Mutual funds allow you to invest money in a collection of stocks or bonds. A professional fund manager handles your investment. This is a great option for beginners, as you don’t have to choose individual stocks yourself. You can start with small amounts, making it easy to invest in mutual funds regularly through SIPs (Systematic Investment Plans).

Investing in mutual funds

Stock investing

This is when you directly buy shares of a company. Over time, as the company grows, the value of your shares increases. It requires some research and patience to choose quality companies that perform well in the long run.

Fixed deposits (FDs)

This is a relatively stable option. You deposit money in a bank, and it earns fixed interest. FDs are suitable for those who want limited but guaranteed returns with no risk.

Real estate investing

You can invest in property and earn profits when property prices go up. Real estate can also generate rental income, making it a great long-term asset.

Gold and other commodities

Investing in commodities like gold or silver is another option. Gold can act as a hedge in times of market uncertainty.

What is trading?

Trading is when you buy and sell stocks or other assets quickly to make short-term profits. Unlike investing, where the focus is on long-term growth, trading is all about taking advantage of short-term price movements. Traders closely monitor the market and look for opportunities to buy low and sell high within a short time frame—be it a day, week or month.

For example: If you purchase a stock for Rs. 100 in the morning and sell it for Rs. 110 by the evening, you make a quick profit of Rs. 10. However, trading requires careful observation, quick decision-making and understanding of market trends to avoid losses.

Trading meaning: Trading refers to actively buying and selling stocks to make quick profits. It is a dynamic process where traders analyse charts, patterns and news to predict price movements. While trading can bring quick rewards, it also involves higher risks compared to investing.

Types of trading

There are different styles of trading, depending on how quickly you buy and sell assets:

Intraday trading

This is also known as day trading. You buy and sell stocks on the same day to profit from small price changes. It requires constant monitoring and quick decision-making, as the market moves rapidly throughout the day.

Swing trading

You hold stocks for a few days or weeks, waiting for favourable price changes. Traders use technical analysis and market trends to identify short-term opportunities.

Positional trading

This involves holding stocks for a longer period, from a few weeks to months. Positional traders focus on larger price movements and often rely on company performance or economic news.

Scalping

The fastest form of trading. You buy and sell stocks within minutes to make very small profits multiple times. Scalpers make several trades in a day, aiming to accumulate small gains that add up over time.

Momentum trading

Traders buy stocks that are moving in a particular direction with high volume. The focus is on riding the ‘momentum’ of a stock’s price trend until it slows down.

What are the main differences between investing and trading?

While both trading and investing involve buying assets, the approach to each is very different. Here’s an overview of the key differences between trading and investing:

Time period

Investing: Long-term (years or decades).

Trading: Short-term (minutes, days or weeks).

Goal

Investing: Wealth creation over time.

Trading: Quick profits through price changes.

Risk

Investing: Generally lower risk if you stay invested in good assets.

Trading: Higher risk because of quick price movements.

Effort

Investing: Requires less time and effort.

Trading: Requires constant attention and quick decisions.

Who should invest and who should trade?

If you’re unsure which one between trading vs. investing is meant for you, you can use the following criteria to make a decision.

You should invest if:

You want to grow wealth slowly and steadily.
You don’t have time to monitor the market daily.
You are looking for relatively stable options like investing in mutual funds.

You should trade if:

You have time to study and monitor the market regularly.
You are willing to take risks for quick profits.
You understand technical charts and price trends.

Trading vs. investing: Which is a more suitable option?

The choice between trading and investing depends on your financial goals, risk appetite and the time you can dedicate.

For beginners:

Investing in mutual funds is a suitable option. It’s simple, stable and managed by professionals.

If you have a full-time job:

Investing is more suitable since it doesn’t need daily attention.
If you love the market and want quick profits.
Trading can be exciting but requires skill and effort.

Keep in mind that trading involves higher risks and quick rewards, while investing focuses on slow and steady growth.

Conclusion

Both trading and investing are great ways to make money, but they serve different purposes. If you want quick profits and have the time to analyse markets, trading investment could be for you. However, if you want to grow your wealth with less stress, investing in mutual funds or stocks is a better option.

Think about your financial goals, the time you can dedicate to this process, and how much risk you are comfortable taking. The good news is that you can always start small and learn as you go.

FAQs

Which is more suitable, stock market or trading?

The stock market is where trading and investing happen. If you are looking for long-term growth, investing is more suitable. If you want quick profits, trading is an option.

Is trading and stocks the same?

No, trading refers to the act of buying and selling stocks quickly, while stocks are the actual assets you buy and sell.

Is trading a part of the stock market?

Yes, trading happens in the stock market. Traders use the market to buy and sell shares.

What is the difference between stock market and trading?

The stock market is a platform where buying and selling take place. Trading refers to actively buying and selling stocks on that platform.

Is stock trading and investing the same thing?

No. Stock trading is short-term and focused on quick profits, while investing in stocks is long-term and focuses on wealth growth.

Which is suitable among trading vs. investing?

It depends on your goals. Investing is better for steady long-term growth, while trading suits those who want quick profits and can handle risks.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.