You must know the difference between stock investment and stock trading

In the world of shares, there are many terms that the lay public may still not understand. So, novice investors should be diligent in learning and seeking as much information as possible before starting to invest. One of the terms most often encountered at the start of saving shares is the terms stock investment and stock trading. What is the meaning of stock investment and stock trading? And what is the difference between the two? Let’s look at it together below.

What Are Shares?

Before we understand more deeply the meaning of stock investment and stock trading, let’s start by understanding the stock itself first. Shares are proof of ownership of a company which is a claim to the company’s income and wealth. This means that when you buy a share, you automatically become one of the owners of the company, and you will also receive a share in the profits from the company.

What is Stock Investment?

So, stock investment can be interpreted as the activity of investing capital in companies that are registered on the Indonesian Stock Exchange and buying and selling their shares. Investment is passive in nature. This means that you as an investor do not run the business directly, you only invest a certain amount of funds which are then managed by the company concerned.

Just like doing business, apart from getting benefits, investing in shares may also not provide benefits for you. Therefore, it is important to recognize and know information about the company in which you invest capital before you decide to invest. Because by managing risk factors well, you will have a greater opportunity to receive benefits from your investment.

What is Stock Trading?

Stock trading means the activity of buying and selling shares by taking advantage of daily market price fluctuations. If in stock investing you are more passive, in stock trading you will be more active. This is because as a stock trader, you will take time to analyze the market and decide on the best time and price to carry out stock transactions.

That way, you can get the best capital gain from the price difference that occurs when you buy shares and when you sell them.

Difference between Stock Investment and Stock Trading

For greater clarity, below we will explain what are the differences between stock investment and stock trading:

1. Principle: Buy and Hold vs Buy and Sell

A stock investor tends to adhere to the buy and hold principle when investing in shares. This happens because stock investors usually invest their capital for long-term plans.

So, stock investors tend not to care too much about the rise and fall of share prices per day. This time period is uncertain, it all depends on each investor. However, usually an investor will sell his shares when his investment objectives have been met.

Meanwhile, a stock trader adheres to the principle of buy and sell. Traders will buy shares at a certain price, and will sell them within a fairly short period of time as long as the share value is within the range desired by the trader. Traders usually expect higher benefits than through regular investments.

2. Fundamental Analysis vs Technical Analysis

Because a stock investor tends to invest his capital for the long term, the analysis used by an investor is fundamental analysis of the company.

Company fundamentals are basic and important information about the company such as the company’s financial reports, company performance, the rate of development of its shares over a certain period of time, and others that can be used as a reference in assessing the company’s performance in managing its business.

Investing capital in companies with good fundamentals will reduce the risk of loss for investors.

Meanwhile, stock traders usually do more technical analysis. This analysis can help traders see stock movements in the short term.

This is because trading is more sensitive to market sentiment and market conditions than to company fundamentals. Therefore, the analysis carried out must be more thorough and detailed regarding all risk factors.

3. Risk

The next difference is risk. If you look at the risks of both, the risk in investing in shares is much lower when compared to trading shares. Because the risk is lower, the results obtained tend to be lower when compared to stock trading.

Stock investors tend to be more selective in choosing companies that will receive their investment, usually investors prefer blue chip companies that are already well-known and proven to have good fundamentals.

Meanwhile, stock traders tend to have higher risks, traders usually choose class three shares or shares that have just been listed on the stock exchange. Traders choose these companies because share prices tend to be cheaper than blue chip shares but have the potential to experience high fluctuations depending on market sentiment.

That way, the hope is that traders can buy shares in large quantities and sell them when the shares experience a significant increase.

The things above are some of the things that differentiate between stock investment and stock trading. Now as a beginner in the stock market you can decide which one is most suitable for you.

One of the rules in the world of shares is high risk, high return, the higher the risk you dare to face, the higher the probability of the benefits you will get. Now, by choosing the right securities, you will get a lot of help in managing the risks you will take.

One of the securities that offers interesting features that can help you in stock trading is RHB Tradesmart ID. With the smart application, you can learn about stock trading and become more expert in the world of stocks.

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