Investing vs Trading

Investing and trading are very different undertakings. The key difference is the risk management.

Investors manage risk using allocation and diversification.

In contrast, traders manage risk with stop loss strategies.

For traders, the objective is to cut losses fast, and let profits run, and the risk reward profile of each trade is the key element.

Traders use price data and charts for their analysis, and trends are the focus.

For investors, the objective is to build a portfolio of high quality companies, and compound returns over the long term.

Investors use the financial statements of a company for their analysis.

Traders can also benefit from knowledge of a company’s quality, and investors can use trends, but generally speaking, investors focus on company quality, while traders focus on trends and ranges.