Trading and investing are two different routes towards achieving the same goal of growing one’s money. However, the key difference is that trading requires more conscious handling in order to produce short-term profits while investing involves less effort and monitoring and is more concerned with long-term gains.
Trading and investing are done traditionally through buying shares of publicly listed companies on the stock market, or with other tradable assets such as bonds, commodities and securities. But the rising popularity of cryptocurrency has also gained the attention of traders and investors to pour their money into digital assets as well.
How does trading work?
In the cryptocurrency world, a trader is someone who is constantly keeping themselves updated on the price movement of coins and tokens in the crypto market. The whole idea behind trading is timing the market properly in order to earn a quick profit.
Certain companies or coins are volatile in nature. What this means is that they could rise or dip in value fairly quickly which could result in substantial gains or losses for shareholders if they’re not attentive to market sentiments.
There are many factors that could influence the rise and fall of certain stocks or crypto, such as supply and demand, newly implemented government policies and regulations, and even geopolitical events such as wars and natural disasters that can influence buyers’ sentiments.
Which is why a trader is someone who is always glued to the news to pay attention to all of these variables. Sometimes, even something as simple as a tweet from influential personalities like Elon Musk could cause the prices of crypto like Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE) to shoot up or drop dramatically.
To give an example, in June of 2021, Elon Musk posted an ominous message on his Twitter account announcing that Tesla would no longer be accepting Bitcoin payments. At that time, BTC was trading at a high of $39,000 thousand prior to the tweet.
In just a matter of days, BTC was trading at a low of $32,000. This dramatic decrease goes to show just how volatile cryptocurrencies can be in response to current events.
A trader pays attention to all of these factors and executes trades accordingly which could net a healthy profit. Timing the market right, or rather–buying assets when they’re low and selling while they’re high–is the basic principle of generating revenue from trading.
Trading and investing can be classified as short-term and long-term investments respectively. But there are also different strategies for trading as well:
- Position trading - when positions are held for a period of a few months to a year.
- Swing trading- when positions are merely held for a matter of days to weeks.
- Day trading - when positions are held only within a day.
- Scalp trading - when positions are held for a matter of seconds or minutes.
Different trading strategies will appeal to different traders. There are those who seek more immediate returns and would prefer to hold shorter positions while there are those who prefer a longer hold.
How does investing work?
Investing is a more laid-back approach to growing one’s money when compared to trading. Research and studying is still required for investors to grow their money, but they usually do not monitor prices as frequently as traders.
Instead, investors are more concerned with the long-term growth of their money, giving more importance to the fundamental value of an asset to consumers and society, rather than short-term price movements which can be triggered by short-lived events.
A company or a cryptocurrency can be performing relatively poorly on the market over the course of a few months, but if they’ve proven to show steady growth over multiple years, then it still makes sense for an investor to put their money into it.
With investing, getting in early is one of the biggest keys to success. For example, 2012 started with BTC trading at a mere $5.27. If you had invested just $100 or approximately PHP 5,000 back then and left it alone, your investment would have netted a profit of over $570 million or over PHP 30 billion.
Granted, very few people were investing in Bitcoin ten years ago. But even if we wind it back to just five years ago when Bitcoin was already rising in popularity, one could still have netted a solid profit.
All in all, between trading and investing, there is no one strategy that is better or worse than the other. It mostly depends on the goals and preferences of an individual, and even on the amount of time and effort that one can allocate for keeping track of price movements and current events.
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DISCLAIMER: The statements in this article do not constitute financial advice. PDAX does not guarantee the technical and financial integrity of the digital asset and its ecosystem. Any and all trading involving the digital asset is subject to the user’s risk and discretion and must be done after adequate and in-depth research and analysis.
PDAX is a BSP-licensed exchange where you can trade Bitcoin, Ethereum, and other cryptocurrencies directly using PHP!
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