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Trading vs Investing : Which Is Better?

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In this blog articles...Trading Vs Investing : Which Is Better? We will talk about the fundamental difference between trading & investing, what kind of return you can expect with traditional investments like real estate and the stock market compared to Forex trading and we will answer which one is better for you: 
          1. Intro to Trading and Investing
          2. What is Investing?
          3. What is Trading?
          4. Types of Trading
          5. Conclusion: Which One is better?

Intro to Trading and Investing

Trading and investing are two very different ways to make money in the financial markets. Most people don't have a clear idea of the difference between trading and investing. That’s one of the biggest mistakes people make.


They think having $500, a $1000, $5000 is investing. Now, Let me explain to you the clear difference between trading and investing.


Most people come to us and they want to know about forex, they want to have a $500, a $1000 or a$2500 account and they want to make money in their trading account so they can withdraw the profits from their account and pay their bills or quit their jobs or whatever they want to do with that money. That’s not investing.


What I just described is trading. That can happen when you’re actively trading your account every day or a few times per week or maybe even a few times per month. So that will be trading. 

Investing

Now investing is very different. Investing is when you put your money somewhere and you haven’t touched it for at least 12 months, for at least a year, that becomes investing, by the law of most countries. That is how they charge you taxes and stuff.


For example in Canada, if you own bitcoin or any crypto or even a forex trade for more than 12 months that is considered investing by the gov. and they charge you a 20% tax on your investing income.


And when you are actively involved in your investment that’s not investing again. Example you have invested in real estate for a year and make anywhere from 2% to 5% from the rental income without doing anything, that’s investing. But when you are involved in the business like flipping real estate that’s not investing.


Now it’s not your money that’s working for you, now it’s you working for your money. So, that is not investing. Investing is when you put the money somewhere and it provides income for more than 12 months without you doing nothing. Investors will be looking to make 5 to 10% per year on their money.


Investments often are held for a period of years, or even decades, taking advantage of interest, dividends, etc. Most investors are more concerned with market fundamentals, even if the markets fluctuate everyday. A 401(k) or an IRA are examples of investing. 


The goal of professional 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

Trading

Trading involves more frequent transactions, such as buying and selling of stocks, commodities, currency pairs, or other instruments.


The goal is to generate quick profits buy entering a trade and holding it for a few hours, or a few days, or a few months. In trading you can also bet against the market, this is known as short selling. You can short a stock or a currency pair, and then buyback with a certain profit. 

Types of Trading

Traders generally fall into one of four categories:
Scalp Trader: Holding period - for seconds to minutes with no overnight positions.
Day Trader: Holding period - throughout the day only with no overnight positions.
Swing Trader: Holding period - from days to weeks.
Position Trader: Holding period - from months to years.

If you have to trade your account multiple times a day or a few times per week or maybe few times per month, that’s not an investment.


If you can trade your $500 account or your $1000 account, you can make some extra income with that. Then you can go with higher risk and try to be a full time trader, but this is going to be hard guys.


What we recommend for traders is to build a track record and eventually show to people that you can make 5% or 10% per month on your money consistently.


And people who are already investing looking to make 5%,10% per year will gladly try to invest with you. Even if you do 2%, 3% per month an investor will be glad with that. 

Conclusion: Which one is better?

So as soon as you are active, soon as you are doing something, it’s not investing. You can invest like $5000 or $10,000 but you're gonna make peanuts.


If you put $10,000 and make 10% on a year, you will make $1000 a year, that’s somewhere around $83 per month, that’s not much right! Even if you have $100,000 and make 10% a year, that’s 10,000k, that’s less than $1000 per month. You cannot live with that!


So I always say that, if you need to invest you should have more than a million dollars. Once you have a million dollars, now you can look to get those 5% to 10% per year. 5% to 10% of a million is $50,000 per year, that’s roughly $4000 to $8000 per month, you can live of that! 


That’s it. You need to treat the money the good way. You need to understand the clear difference between the two.

Most people come in trading thinking the investment way, or they came into investment thinking they will meet the trading returns. That’s not the right way.

And that is why we prefer to trade rather than hoping on our investments to grow. As we can grow our capital way faster and more efficiently

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