Written by Katie Gomez

Investing and trading often are used interchangeably, but the two processes are inherently different. Generally, investing refers to the practice of purchasing certain assets to hold on to those assets for an extended period of time. On the other hand, traders buy and sell assets in shorter periods; for some day traders, that can be as short as one-minute time frames. 

Investors focus more on long-term goals such as retirement. They hold onto their assets to reach their financial goals with more return than a standard savings account. On the other hand, traders usually have short-term profit goals in mind. Trading is typically considered riskier than investing. Therefore, new or inexperienced investors should be wary of immediately jumping into trading. So, you might ask yourself, “should I be investing or trading?” In this article, I will review the main differences between the life of an investor and a trader, and hopefully provide you with a clear answer to that question. 

Investing and trading share many similarities and prerequisites for entering. That said, before you can start investing or trading, you must ask yourself the following questions:

1. Am I a beginner? As a beginner, you must look for a broker with substantial education resources and a paper trading account or trading simulator (like Trade Ideas offers) to practice before you enter the market. It is also important you find a broker that has analysis tools to help you plan, invest, and manage your portfolio after leaving the practice simulator. 

2. How much can I actually afford to invest right now? If you are thinking about investing or trading on your own via apps like Robinhood or Webull, you should establish what your set limits are. Establishing limitations before investing is crucial to avoid investing money you are emotionally attached to for survival (like the money you need for essentials like food, water, rent, etc.). 

Taking the time to budget money specifically for investing is critical, no matter what type of account you choose to put it in, whether that’s self-directed trading or a managed 401k. Additionally, if you are looking to seek out a broker, many established brokerages require a relatively significant investment just to open an account. So if you’re looking to start slow, it’s best to do your homework to find a broker with low to no account minimums, before jumping into business with a broker asking for three months of your rent. 

3. Am I equipped with the right tools? Generally, standard investments don’t require the extra bells and whistles that some traders may need. Long-term investors can get away with using a simple web platform, online brokerage, or app to conduct their investments. On the other hand, traders require more of a specific setup, especially if you’re looking to become a day trader or swing trader. Day traders often have a desktop setup with more than one monitor to follow all the action and news. 

4. What assets am I most interested in investing in now? If you want to build your portfolio, most brokerages offer the basics of stocks and ETFs. On the other hand, the less popular but more reliable passive investments, such as bonds and options, are less ubiquitous. Suppose you are more interested in volatile trades and investments like forex or cryptocurrency. In that case, you’ll need to look at larger brokers that offer assets beyond the basic, which will most likely require a more sizable account minimum balance. 

Determine your goals. These are just a few questions you should have answered before starting your investing journey. Having a clear intention to guide you down the right path is essential. That said, which avenue is best for you at this point in time? Trading or investing? 

Investing 

Are you looking for less effort, and more passive investments? Is your goal to create a stronger sense of security for yourself or your family in the future? Then you should start investing by opening a retirement account or tweaking your plan to benefit your current financial goals and needs better. 

Trading 

Is your goal more short-term oriented like supplemental income, or intention to actively invest and trade to maximize returns? Do you have the time or wherewithal to keep track of a fluctuating market? If this sounds more like you, you may be ready to learn more about trading at www.tradeideas.com.  

Whichever course you choose, it is a wise decision to start taking control of your finances. There is no right or wrong way to invest, no better route to take. What matters most is what works for you, at this point in your life, because everybody’s journey is going to look different. Of course, you want to start your investing or trading journey confidently, so make sure you feel comfortable and well-informed before jumping into either.