18 November, 2019
The financial market consists of a variety of participants some of them are active while many of them choose to be passive. These participants choose their style of investing or trading based on their financial goals. But many individuals find it difficult to make monetary gains out of the market because they select the style that is inappropriate considering other factors such as time, knowledge etc. Today we want to discuss why individuals should prefer investing over trading:
Trading requires special skills and training: Trading of financial securities such as stocks and derivatives requires comprehensive training and skills like technical analysis, which are uncommon for individuals who are not qualified financial professionals.
Trading requires a lot of time commitment: Types of trading such as intraday require active monitoring and cannot be ignored for even a few hours. Individuals who have other work commitments should refrain from making such trades that require extensive and active monitoring.
Risk Management: Trading involves a fair bit of risk and in order to have a positive outcome, individuals should have appropriate risk management skills such as effectively placing stop losses, making trades that are well within their limits, not getting over- leveraged and the list goes on.
Investing has given better returns historically: Even though it is a very subjective and preferential topic and rate of success varies from person to person, investing for the long term in growth stocks have given the highest returns as compared to any form of trading.
To sum up, trading is an art that requires a lot of skills, time and commitment to give out successful gains. Many individuals who are not professional traders or qualified financial professionals and have other activities in which they are actively involved should follow a more passive approach towards the market and should refrain from using methods such as trading to make gains. These individuals should look towards value or growth investing and should hold quality scripts for long term and let compounding make their gains for them rather than speculating share price movements without the appropriate knowledge and skills resulting in major financial losses.