Investing vs. Trading 💡

Out of curiosity what’s your views on what separates trading vs investment? Are they the same? Or are they separated by time? Or intention? Or is it semantics? Or something else?

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I think time does play a part in it - I see investing as more of a long term activity, where you look to grow your wealth by generally supporting a product or brand that you believe in, as opposed to trading which I see generally being more of a short term money making activity, where you look to identify market opportunities regardless of your belief in the underlying asset, bitcoin would be an example.

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Investing and trading are two very different methods. Investopedia’s definition:

The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments

Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments

Freetrade as a name comes from the trades (orders) being free. The product is more optimised for investing.

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@tommy / @viktor Thanks, so I was thinking more in terms of An Introduction to Alternative Investments 🏠 it wasn’t attached to the Freetrade name.

With that said in stocks it’s easy to separate the 2 but not sure it’s easy to split the 2 in alternative investments. Take your example of

I would view this as trading, as you are buying it knowing it’s undervalued and then selling it in a market ( maybe contacts or auction ) where the real value can be realised.

Then things get blurry because it might be a car and it might be season specific, so convertible anyone? You might have picked it up cheaper in winter and hope to sell before summer.

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I’d still consider this trading, although I agree it gets blurry.

The fur expert is definitely a trader. :slight_smile:

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Agree with all the statements so far on trading = short-term and tactical while investing = long term, strategic.

However, one funny nuance in the semantics is you rarely see super-rich financiers described as traders, even if their strategy is much more tactical than long-term investing. Once they’re billionaires, they’re always investors. Might tell us something, I suppose.

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This is a really interesting question @saf. I hope you don’t mind as I split it into a separate topic, as I thought it deserved it. Whether someone is new to investing or an old hand, there are some great ideas and useful definitions here.

On semantics, I think that as financial markets and products have increased in complexity and number, the two terms have been used interchangeably by marketeers looking hook customers in, and have become blurred stemming from innovation in the financial services industry. @rob touched on this idea in the :ok_hand:t3: post on CFDs and leveraged trading.

And then there’s truly the versatile instrument that is the ETF; supporting strategic investing (index linked ETFs), tactical trading (momentum ETFs), providing exposure to a smorgasbord of underlying assets from commodities, (gold, oil, livestock - apologies to our vegetarian friends), currency, debt and exotic derivatives (inverse ETFs).

@Freetrade_Team such a good point. It’s interesting because I think there’s a sort of value judgement around the difference between the two. Do you think it’s driven by an awareness to the perception, rightly or wrongly that trading = opportunistic, exploitative vs. investing = considered, worthy ?

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It’s fine and it makes more sense to have a separate thread. We’ve kind of moved away from alternative investments but the question still makes sense and we have insightful answers here so everyone wins.

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Think that’s pretty much it - investing ties into the narrative of ‘wealth creator’ rather than ‘wealth arbitrager’ or ‘wealth taker’ that trading potentially might imply.

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