Investing vs Trading Difference | Types of Trading, Risks & FAQs Explained

🧩 Etymology & Meaning

“Trading” comes from the Old English word “traden” meaning to tread or make a path, later evolving into exchange or commerce.
“Investing” originates from the Latin word “investire”, meaning to clothe or surround, symbolizing putting money into something to grow or gain value.

💡 General Meaning

In financial terms:

Trading means buying and selling financial assets (like stocks, bonds, currencies, etc.) frequently to earn profit from short-term price changes.
Investing means buying and holding assets for long-term growth, usually years or decades.

📜 History of Stock Market (Short Overview)

1600s: The world’s first stock exchange began in Amsterdam (1602) with the Dutch East India Company.
18th Century: London Stock Exchange was established (1773).
1875: India’s first stock exchange – Bombay Stock Exchange (BSE) – was founded.
1992: National Stock Exchange (NSE) was established, introducing electronic trading in India.

📊 What is Trading?

Trading is the act of buying and selling financial instruments like stocks, commodities, currencies, or derivatives to make a short-term profit from price fluctuations.

It requires technical analysis, market timing, and risk management.
Timeframe: Seconds to months (depending on the type).

💰 What is Investing?

Investing means putting your money into assets like stocks, mutual funds, bonds, gold, or real estate to build wealth over time.

It is based on fundamental analysis (company performance, earnings, etc.).
Timeframe: Years to decades.

⚠️ What is Risk?

Risk is the possibility of losing money due to market movements or unforeseen events.
In finance, higher returns usually come with higher risk.

⚖️ Risk in Trading vs Risk in Investing

Aspect	Trading	Investing
Time Horizon	Short-term (seconds to months)	Long-term (years to decades)
Market Volatility	High – reacts instantly to news	Lower – smoothened over time
Knowledge Needed	Technical & chart-based	Fundamental & business-based
Emotional Stress	High – needs quick decisions	Low – patience-based
Return Expectation	Fast profits (and fast losses)	Slow but steady growth
Risk Level	Very High	Moderate to Low
Tools Used	Charts, Indicators, Price Action	Balance Sheet, P/E Ratio, ROE, etc.

💼 Types of Trading in Stock Market

There are many trading styles based on duration and strategy:

1️⃣ Intraday Trading (Day Trading)

Buying and selling stocks within the same day to profit from small price changes.
👉 Example: Buying Infosys shares at ₹1500 and selling at ₹1520 before market close.

2️⃣ BTST (Buy Today, Sell Tomorrow)

You buy shares today and sell them before they get delivered to your demat account (next day).
Useful when you expect the stock to rise the next day.

3️⃣ STBT (Sell Today, Buy Tomorrow)

Opposite of BTST – you sell first and buy later (used when you expect price to fall).

4️⃣ Swing Trading

Holding positions for a few days to weeks, focusing on market “swings” or trends.

5️⃣ Scalping

Ultra-short-term trades — entering and exiting in seconds or minutes to capture very small profits multiple times.

6️⃣ Positional Trading

Holding stocks for weeks, months, or years based on larger market trends.

7️⃣ Momentum Trading

Buying assets showing strong upward momentum and selling those with downward momentum.

8️⃣ F&O (Futures and Options) Trading

Derivatives trading where traders speculate or hedge future prices of assets.

Futures: Agreement to buy/sell at a fixed future date and price.
Options: Right (but not obligation) to buy/sell an asset at a future date.

9️⃣ Commodity Trading

Trading in physical goods like gold, silver, oil, or agricultural products on commodity exchanges (MCX, NCDEX).

🔟 Forex Trading

Trading in currency pairs like USD/INR, EUR/USD, etc.

🧾 Investing vs Trading – Difference Table

Criteria	Trading	Investing
Objective	Quick profit	Wealth creation
Timeframe	Short-term	Long-term
Approach	Active	Passive
Analysis	Technical charts	Fundamental reports
Risk	High	Lower
Return	Quick but uncertain	Gradual and stable
Mindset	Speculative	Strategic
Tax	Short-term capital gains tax (15%)	Long-term capital gains tax (10% above ₹1 lakh)

🧠 Risk Management in Trading

Stop-Loss Order: Automatically exits a losing trade to limit loss.
Position Sizing: Risk only 1–2% of capital in one trade.
Risk-Reward Ratio: Maintain 1:3 ratio (risk ₹100 to earn ₹300).
Avoid Over-Leverage: Don’t borrow heavily for trades.
Control Emotions: Stick to a plan; avoid greed or fear.

💹 How to Start Trading in India

Learn Basics: Understand stock market, order types, charts.
Select Broker: Choose a good broker (like Zerodha, Upstox, Groww).
Open Accounts: Open Trading + Demat Account.
Fund Account: Deposit money for buying/selling.
Practice: Try demo or paper trading first.
Start Small: Begin with small capital and low-risk trades.

💬 FAQs about Trading & Investing

1️⃣ Which is better — Trading or Investing?

👉 Investing is better for beginners and long-term wealth. Trading gives fast returns but high risk.

2️⃣ Why do 90% people lose in trading?

👉 Because they trade emotionally, use high leverage, lack discipline, and don’t follow a stop-loss.

3️⃣ Can I earn ₹20,000 per month by trading?

👉 Possible, but not guaranteed. It needs high skill, discipline, and capital. Most beginners lose initially.

4️⃣ What is the “7-5-3-1 Rule” in trading?

👉 A trading discipline rule — for every 7 trades, only 5 should be winning, 3 should be break-even, and 1 can be loss — focusing on risk control and consistency.