Financial Basics 103: Investing & Trading
Updated: Jun 7, 2020
Investing puts your money to work for you in a deliberate, productive way. Most experts recommend at least a three-year investment time-frame. And the longer your money is invested the more it can work for you.
Most investments are into a business you think will perform well. When it comes to more specific examples of how to invest money, investors typically buy into reputable companies with established value. You may be a partner in a private company, or own shares in a public company. Investors want to see a return on their money. Returns come from growth in the value of the company or dividends.
Advantage: You can grow your wealth much faster with higher returns. Steadily compounding dividends can grow your money exponentially.
Risk: Markets fluctuate with politics, current events, news cycles, and business management. You can lose money on pullbacks. Not all companies prosper, some fail.
Trading is a kind of investing with a shorter timeline. Traders look at potential profits in fast moving markets. They may make many trades on an hourly, daily, or perhaps weekly basis.
Traders take advantage of the volatility and uncertainty of the financial markets. They seek to profit from fast rises and falls that happen from short term day to day activities. The markets are always moving. Up, down or sideways. They want to take advantage of every opportunity. Traders use a variety of charting tools and analyses to predict where the market is going and when the trend will change.
While this kind of trading is considered speculative, skilled traders manage their trades so the winning trades outnumber the losing trades. They accept losses as a part of the nature of their trading, but work to minimise the losing trades and maximise the winning ones.
Advantage: While past performance is no guarantee of future results, well-researched trading based on fundamentals and not emotion has produced stable returns you are not likely to see from other kinds of investments. Sign up and check out eToro’s Platform where you’ll find plenty of skilled traders who you can chat with or whose trades you can copy.
Risk: You must be able to accept losses in your account and have the self control to keep your emotions in check as you trade. All trading involves risk. Only risk capital you’re prepared to lose and past performance does not guarantee future results.