Advertorial — Stock market or trade? Investment or speculation? The difference between these concepts is not always clear. However, it is important to understand the nuance between these terms before launching them into the financial markets, at the risk of some disappointments!
Quick reminder: what is the stock market and trading?
The stock exchange: an investment market
The stock market is an organized and regulated market where various financial assets such as shares, bonds, but also derivatives and certain commodities are exchanged. This market allows companies to finance themselves (by issuing shares or bonds) and investors to invest their capital by buying these assets.
On the stock market, assets are quoted continuously during market hours, and nothing prevents you from buying and reselling securities during the day.
Investing in the stock market, however, generally aims for long-term gains., based on business growth or dividend payout. Most investors’ management choices are then based on fundamental analysis: reading companies’ accounts, their growth prospects or even understanding their sector of activity.
Trading: an active approach to the market
Trading, on the other hand, focuses on the buying and selling of assets with the aim of profiting from price fluctuations, usually in the short or medium term.
This practice requires constant monitoring of your positions and buying and reselling securities regularly. For many traders, investment decisions are based on:
- Graphical Analysis: the study of the share price and the identification of certain “patterns” or recurring “figures”.
- Technical analysis : study of various statistical indicators believed to predict future price movements.
Traders use different strategies, such as day trading (buying and selling on the same day), swing trading (taking positions over several days or weeks). Some even automate their stock market orders using algorithms (this is called algorithmic trading), allowing them to execute transactions in large numbers.
Stock Market and Trading: What’s the Difference?
Investing in the stock market: betting on the long term
Investing in the stock market therefore consists of investing your capital in financial assets for the long term. The earnings prospects will be linked to the ability of the selected companies to generate profits in the long term. This is what must be at the center of the strategy.
Among the most common investment strategies we find:
- Investment selection based on fundamental analysis: Investing in the stock market often relies on fundamental analysis of companies that examine their balance sheets, growth strategies and industry position.
- Portfolio diversification: To reduce risks, stock market investors tend to diversify their portfolio by spreading their investments among different companies and sectors.
- Search for dividends and profitability: In the long run, the whole point of owning a stock is to reap dividends. In order to do this, we must therefore bet on companies which sooner or later will be able to achieve significant and lasting profits.
However, fundamental analysis is complicated, tedious and uncertain. Therefore, index strategies emerge that are much easier to implement and just as effective. To find out more, we recommend this tutorial to invest well in the stock market.
Trading: short-term speculation
Trading focuses on the buying and selling of financial assets in time frames from minutes to days, often to take advantage of market price fluctuations in whatever direction they may occur!
The basic principles of trading
- Technical analysis: Traders often rely on technical analysis, which involves the study of price charts and market patterns to predict short-term trends.
- Day Trading and Swing Trading: Methods such as day trading (buying and selling on the same day) or swing trading (holding a position over several days or weeks) are common.
- Use of leverage: Traders can use financial instruments that offer leverage, which allows them to trade with more than their own capital, which can magnify gains as well as losses.
The trader’s job is therefore not easy. To become a trader, several paths are possible, from university studies to specialized training, including self-taught. More information on getting started trading on Finance Héro’s website.
Risks and governance
Short-term trading is generally riskier than long-term investing due to market volatility over short periods of time.
Traders must therefore be adept at risk management by using techniques such as stop-loss orders to limit potential losses.
To conclude in a few words
Although the stock market and trading operate in the same markets, their approaches, strategies and objectives are markedly different.
Investing in the stock market aims for long-term growth and stability, while trading seeks to take advantage of short-term price movements with a generally higher level of risk.
The stock market and trading: two complementary techniques to optimize your portfolio?
Investing in the stock market and trading, although different in their approaches and objectives, can be complementary in diversifying and maximizing the potential of your financial portfolio.
Long-term investment and short-term trading
– Investing in the stock market : Investors aim for sustained growth and stability, often for goals such as supplementing retirement. They rely on fundamental analysis to select stocks or assets that they believe will increase in value over a long period of time.
– Trade : Unlike investing, it involves taking advantage of rapid market fluctuations to generate regular profits, which can be an effective method of increasing your monthly income.
Combining the two will therefore allow you to create synergies between the two approaches.
By combining these two approaches, you can diversify your portfolio, thereby reducing risk and maximizing earning potential.
2/ Balancing risks
Long-term investing can provide a stable foundation for your portfolio, while short-term trading can provide quick, albeit riskier, gains.
The complementarity of these two techniques provides greater flexibility in the management of your portfolio, allowing you to adapt to different market conditions and your personal financial goals.
Content suggested by FINANCE HERO
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