The pandemic has created a new wave of investment as people had more time at home. Many were seen enjoying pockets full of profit which have increased the attraction of people towards the market.
Trading and investment are two of their own terms carrying vast knowledge on an individual level. As a beginner, it’s vital to grasp the concept before entering the market to avoid making mistakes.
If you’re thinking of making your money work to make more money, you are at the right place. The article will jot down the differences between investing and trading to help you make sound decisions about your future finances. Without further ado, let’s get started!
Investing vs Trading
The terms investment and trading are interchangeable as both involve making money using spare money with a different approach. When you’re trading, you are investing, but you’re not necessarily trading when you’re investing. This means an investor enters the market with the mindset to earn more incredible wealth over an extended by holding stocks, bonds, funds, and other assets.
A trader makes smaller yet frequent profits. Investment is usually made for years, and sometimes decades enjoy perks like dividends, stock, interest, etc. For instance, if you’re buying stocks intending to hold till they reach maximum expected profit to enjoy the more incredible wealth, you’re investing.
On the other hand, traders get involved in the market to have frequent, short-term transactions until the market offers a bounty. If a trader makes a loss, they might sell the investment before further loss instead of holding back the investment for the long run till the market fluctuates.
The Risk Factor
Both investing and trading are likea business where one can make tremendous profit overnight and lose everything within a fraction of a second. Hence both involve risk. In general, trading involves greater risk than investing. In the case of trading, an unwanted event with stocks or whatever you’ve invested in can make you lose all your money.
Whereas in the investment, you always can recover at least a fraction of investment by waiting for the right time. However, keep in mind, more significant risk means more profits. Where an investor enjoys 8% to 10% on their investment annually, a trader can enjoy equal profits at the end of a month.
Day trading penny stocks
Day trading penny stocks has become one of the most popular ways to make money on relatively small price movements over the last few years. And no wonder why – with the low barrier to entry and the rise of online penny stockbrokers, traders can trade from anywhere in the world with only a couple of hundred dollars.
So, how can you make money day trading penny stocks? Self-made millionaire Tim Sykes made his fortune at the age of 22 with penny stocks trading. On his website, you can find the best penny stocks to trade and watch, along with weekly updated.
Here is a summary of a few facts about trading penny stocks:
1. Know what penny stocks are
Compared to more traditional stocks, penny stocks require a different approach, as they represent companies that are usually not traded on major stock exchanges. Penny stocks, also called microcaps, are mostly relatively new companies with small market capitalizations in trendy industries, such as marijuana, biotech, cryptocurrency, or the sustainable energy sectors. You can read more about sustainable investing on Sustainfi.com.
They can also be formerly large companies whose stock prices have plummeted. While many penny stocks will fail, some will thrive to become tomorrow’s next big thing, providing early investors with great returns. Think about Apple, Amazon, Ford Motor Co., Advanced Micro Devices, and Snap Inc. – they all started with a share price under $5 before becoming the behemoths that they are today.
2. Understand the risks involved with penny stocks
Because they’re mostly traded over the counter (OTC markets), penny stocks do not have to meet the minimum standards of keeping and sharing financial data and other information about their companies. This makes it difficult to find reliable public information about them to determine their value and growth potential.
It also means that they are volatile with mostly low trading volume, which means that it can sometimes be complicated to buy and sell penny stocks at a given price when you want to. It also means that any trading position could trigger a large price movement. Because they do not have to comply with major stock exchange standards, they can also be subject to price manipulation and fraud.
3. Determine your day trading strategy
Once you know what penny stocks are and you understand how risky they can be, you need to start working on your day trading strategy. As a reminder, day trading is one of the most aggressive trading styles, which requires all trading positions to be closed by the end of the trading session.
With day trading, you will be actively trading the markets to take advantage of volatility and turn small price changes into potential big profits, thanks to leverage and margin trading. Before you start day trading penny stocks, you need to determine your strategy and write it down in a trading plan, so then there is no room for interpretation.
Final word
Investing and trading might seem similar, but they are two different terms with a different set of rules. Both involve different mindsets, risks, profits, and periods of Return on Investment. Its recommended not to rely solely on trading or investment, primarily as a beginner.
Suppose you’re starting off, take necessary precautions like saving for your monthly expenses, medical and emergency, and enter the market with your spare cash only. Penny stocks can be a great way to make money with such an active trading strategy, especially for traders with small or limited initial capital.
You just need to be well-prepared to be a successful penny stock day trader. So, work on your day trading strategy and build a robust and profitable trading plan with money and risk management rules that will guide your trading and protect your capital.
