Investing and trading: what are the differences?

What is an investment?

Investment is the purchase of an asset or the use of a sum of money in a business, company, or project.

This action leads the investor to hold something: stocks, bonds, real estate or even a very rare bottle of whiskey.

The ultimate goal is to see an increase in the value of the asset compared to the beginning. For example, by buying stocks, one hopes that they will appreciate in value over time. At this point, the investor can resell and make some profit.

Above all, a lot of patience is needed in this world: barring resounding strokes of luck, it takes years before one can reap the benefits of a good investment.

Think of the shareholders of Tesla, the famous company of tycoon Elon Musk: on July 2, 2010, a single share was worth $3.84. At the beginning of November 2021, it exceeded $1,200 (admittedly, and then fell a lot). Eleven years of waiting that were worth every single second, no doubt about it: an investment in 2010 of only $1,000, on November 5, 2021 it was 317,708. Not bad!

A few lines above we used the verb “hope”: here, pure poetic license. In reality, hope has nothing to do with the world of well-planned investments. The serious investor prepares carefully, uncovers opportunities and proceeds. He hopes for nothing: he already knows that within a few years he will be paid back.

Those who operate in this way must study the prospects, assess their future plans and current state of health. Probably, a person skilled in this field knows more about the assets in which he has invested than himself. In the study,fundamental analysis is the most important and indispensable tool.

Some typical characteristics of an investment:

• Thetime horizon is the long term (in some cases even the medium term, however never the short term).
• There is no chance to gain if the market is bearish: glory comes only with positive trend.
• The strategy is buy and hold (our dear HOLD).
• Possible on endless markets and products: holdings in companies, stocks, bonds, rarities, vintage cars, ancient coins and…cryptocurrencies!

Let us now look at the exact opposite: trading.

"Investment enables building wealth over time"

What is trading?

Trading is the buying and selling of assets such as stocks, commodities, and currencies. Warning: this is the only commonality with investing.

We have seen how the investor buys something to hold it over time. The trader operates differently: taking advantage of signals provided by charts and indicators, he is able to speculate and make quick gains.

Trading is not suitable for the faint-hearted: calculating the exact timing for action and resisting pressure is really difficult.

In this trading, the health of the company or the potential of an asset does not matter. If the analysis provides clues to a particular movement, the trader enters the game, waits and liquidates the position upon reaching his goal.

In trading, it is also possible to make money in bearish periods, proceeding, for example, with an open sale: the trader sells an asset he does not own at a certain price; then he waits for the value to fall so he can buy what he had sold. A little confusion? perfectly normal!

This trading almost completely ignores the study of fundamentals: it is technical analysis that takes over.

Some typical trading characteristics:

• The time horizon is the short term. Some traders even go so far as to open and close a position in a matter of minutes.
• The skillful trader always makes money, regardless of the market trend.
• The strategy is buy-sell or sell-buy. Nothing is held in the portfolio or invested in an asset.
• More limited but still broadtrading. Stock, currency and commodity markets are the most heavily traded areas.

Trading might seem simple: “ah but it’s going up, so I buy, wait an hour or so and then sell everything and make a profit”…wrong!
You need a lot of experience and knowledge of market dynamics to trade effectively. The vast majority of inexperienced “traders” suffer heavy losses: handle very carefully!

"Trading requires skills, experience, steady nerves and a bit of luck"

Cryptocurrency investing and trading

So far we have talked in a very general way about the subjects of this in-depth study. Now, however, let us look at the processes of investing and trading in cryptocurrencies. To do so, we will use an example as always.

INVESTMENT IN BITCOIN

First of all, let’s carefully analyze the coin and ask whether it is valid, how we see it in the future, and what other people think about it. It is crucial not to overlook anything: let’s document it with articles and videos, consulting even those that are critical and go against positive sentiments.

Let us also study the specifics of Bitcoin: supply, distribution , transaction speed and so on. In fact, we will have to carry out a good fundamental analysis.
At this point, if the answer to the question “Is Bitcoin a good investment?” should be “Yes,” let’s position ourselves. There is no right or wrong: it’s up to us!

This and many other coins can be purchased on a variety of exchanges such as Kraken and Crypto.com.

We decide what percentage of the portfolio will be allocated to BTC, so we can make adjustments when needed.

We are now bitcoin holders (and investors). If the price goes down by 20 percent tomorrow, don’t panic: our analysis is still valid and we have to believe the conclusions we get. Selling after a dump will only make us lose money twice: at the time of the sale and when the price pushes up again.

In 3, 4, 5 or 10 years, when the target we had set is reached, we can decide what to do: close the position partially or completely, hold it or increase it further.

Although the investment is for the long term, we still stay informed and ready to act if needed. For example, if the whole world were to ban Bitcoin forever tomorrow, it would be crazy to hold it!

After this last sentence and due discouragements, let’s move on to the next point.

TRADING ON BITCOIN

First of all, we have no interest in holding BTC. We are just hunting for favorable situations to make profit.

Consulting the chart, an opportunity is clearly visible: the bearish trend is indeed giving signs of imminent reversal. We open a long position (buy) using an exchange such as those already mentioned or Bitget and ByBit.

We were right: in just a few hours, the asset rises 5 percent from our loading price. Satisfied and not wanting to take risks, we close it and celebrate.

Tomorrow will be another day and the technical analysis of Bitcoin, Ether or Solana will suggest other possible opportunities. If they are interesting we will act, otherwise we will wait for something more inviting. Trading is not just frenzy: there is also a lot of waiting.

In this trade, one must always be in front of the charts, forbidden to be distracted. Therefore, the mind is constantly under stress, and not everyone is able to hold over time.

"Investing or trading cryptocurrencies? Popular but unanswered question: depends on the person"

Investment or trading: what to choose?

Now that we have discovered the huge differences between these two realities, we can answer: it depends!

Investing is suitable for people who like to know a project thoroughly, follow it and be part of it. It is ideal for people who cannot devote hours to studying charts, or for those who cannot handle the pressure of trading.

In addition, investing can bring huge gains: it just takes patience.

Trading is perfect for those who love the hustle and possess the right eye for charts.
The gains are small compared to investing. However, a good trader can bring in really large sums, easily outperforming investors.

For those who feel up to it, investing and trading are perfectly combinable. Indeed, it is possible to gain great benefits from their coexistence: for example, in a bearish period, trading allows you to gain while investing is unfortunately suffering.

Regardless of the choice, informative materials abound on our platform.