Stock market or Trading: definition and differences

Advertorial — Stock market or Trading? Investment or speculation? The difference between these notions is not always clear. However, it is essential to understand the nuance between these terms before launching into the financial markets, at the risk of some disappointments!

Quick reminder: what is the Stock Market and Trading?

The Stock Exchange: an investment market

The stock market is an organized and regulated market where various financial assets such as stocks, bonds, but also derivatives and certain raw materials are exchanged. This market allows companies to finance themselves (by issuing shares or bonds) and investors to invest their capital by purchasing these assets.

On the stock market, assets are listed continuously during market hours and nothing prevents you from buying and reselling securities during the day.

However, investing in the stock market generally aims for long-term gains., based on business growth or the payment of dividends. The management choices of most investors are then based on fundamental analysis: reading the financial statements of companies, their growth prospects, or even understanding their sector of activity.

Trading: an active approach to the market

Trading, on the other hand, focuses on buying and selling assets with the aim of profiting from price fluctuations, most often in the short or medium term.

This practice requires monitoring your positions constantly and buying and reselling securities regularly. For many traders, investment decisions are based on:

• Graphical analysis: the study of the stock price and the identification of certain “patterns”, or recurring “figures”.
• Technical analysis : the study of various statistical indicators believed to predict future price movements.

Traders adopt different strategies, such as day trading (buying and selling on the same day), swing trading (taking positions over several days or weeks). Some even automate their stock market orders, using algorithms (this is called algorithmic trading), allowing them to carry out transactions in large numbers.

Stock market and Trading: what’s the difference?

Investing in the stock market: betting on the long term

Investing in the stock market therefore consists of investing your capital in financial assets over the long term. Earnings prospects will be linked to the ability of the chosen companies to generate profits in the long term. This is what must be at the center of the strategy.

Investment strategies

Among the most common investment strategies, we find:

• Investment choice based on fundamental analyses: Investing in the stock market often relies on fundamental analyzes of companies, examining their balance sheets, growth strategies and industry position.
• Portfolio diversification: To reduce risks, stock market investors tend to diversify their portfolio, by distributing their investments between different companies and sectors.
• Search for dividends and profitability: In the long term, the whole point of owning a stock is to reap dividends. To do this, we must therefore bet on companies which will sooner or later be able to achieve significant and lasting profits.

Fundamental analysis, however, is complicated, tedious, and uncertain. Hence the emergence of index strategies that are much simpler to implement and just as effective. To find out more, we recommend this tutorial for investing well in the stock market.

Trading: short-term speculation

Trading focuses on buying and selling financial assets in timeframes of minutes to days, often to profit from market price fluctuations in whatever direction they may occur!

The fundamental principles of trading

• Technical analysis : Traders often rely on technical analysis, which involves the study of price charts and market patterns to predict short-term trends.
• Day Trading and Swing Trading: Methods like day trading (buying and selling in the same day) or swing trading (holding a position over several days or weeks) are common.
• Using leverage: Traders can use financial instruments that offer leverage, allowing them to trade with more than their own capital, which can magnify gains as well as losses.

The trader’s job is therefore not easy. To become a trader, several paths are possible, ranging from university studies to specialized training, including self-taught. More information on getting started with trading on the Finance Héros website.

Risks and management

Short-term trading is generally riskier than long-term investing due to market volatility over short periods of time.

Traders must therefore be adept at risk management, using techniques like stop-loss orders to limit potential losses.

To conclude in a few words

Although the stock market and trading operate in the same markets, their approaches, strategies and objectives are markedly different.

Investing in the stock market aims for long-term growth and stability, while trading seeks to profit from short-term price movements, with a generally higher level of risk.

The Stock Market and Trading: two complementary techniques to optimize your portfolio?

Investing in the stock market and trading, although distinct in their approaches and objectives, can be complementary to diversify and maximize the potential of your financial portfolio.

Long term investing and short term trading

– Investment in the stock market : Investors aim for sustained growth and stability, often for objectives such as supplementing retirement. They rely on fundamental analysis to choose stocks or assets that they believe will increase in value over a long period of time.

– Trading : Unlike investing, it involves taking advantage of rapid market fluctuations to make regular profits, which can be an effective method of increasing your monthly income.

Combining the two will therefore allow you to create synergies between the two approaches.

1/Diversification

By combining these two approaches, you can diversify your portfolio, thereby reducing risk and maximizing earning opportunities.

2/ Balancing of Risks

Long-term investing can provide a stable foundation for your portfolio, while short-term trading can offer quick, albeit riskier, gains.

3/ Flexibility

The complementarity of these two techniques allows greater flexibility in the management of your portfolio, allowing you to adapt to different market conditions and your personal financial objectives.

Content proposed by FINANCE HERO