Investment Versus Trading
Investment Versus Trading: What’s The Difference?
Created On : 22/08/2021 Updated On : 24/08/2021 Read Time : 05 min
Investors are usually geared for the long-term and aren't concerned with short-term price movements. so as words, an investor will back the long-term potential of a coin when investing in it, with the intention to sell it (and realize a profit) during a few years.
Traders, on the other hand, possess a short-term horizon with a stress on price movements. Traders are concerned with hourly and daily price movements of the cryptocurrency market, engaging in buying and selling of coins with the target of short-term profits. the essential goal of traders is to shop for a coin at a low price and sell it at a better price within the next minute, hour, day, or week.
This refers to the frequency of executing trades. Trade frequency is directly linked with the investment period of an investment; the longer the time horizon for an investment, the lesser frequency of trades there'll be.
Investors usually have a low trade frequency, indicating that they're going to tend to carry on to a coin without selling until their long-term objective is met, which may span out a couple of years. Cryptocurrency investors would invest during a coin (or variety of coins) and store them during a cryptocurrency wallet for long-term safekeeping.
Traders, on the other hand, feature a higher trade frequency. Traders would execute many trades since they’re within the constant pursuit of taking advantage of market opportunities. Though trading has given a better probability of generating more profits, it's a highly risky endeavor that needs active and constant monitoring of market conditions.
Risk profile (or ‘risk appetite’) refers to the extent of risk that one is comfortable with. it's important for everybody to know the concept of risk in investing. Risk is directly associated with the potential returns of a specific investment.
However, traders are ‘risk-takers’ since frequent trading incurs a way higher degree of risks. this is often because the acute volatility of short-term cryptocurrency prices can present traders the chance to make lots of money but might be equally disastrous if they're on the incorrect side of the bet. Additionally, traders often engage in margin trading, which is a practice of borrowing funds from third parties to trade cryptocurrencies. Margin trading significantly increases the risks of trading since the traders have the power to make extra money (as compared to using their own funds) but also increases their potential losses.
Perhaps the foremost important distinction between cryptocurrency investors and traders is that the sort of analysis undertaken by both groups. Since investors take a long-term bet on the worth of a coin, fundamentals are a core component in evaluating the viability and potential of a coin. It must be mentioned that fundamental analysis for cryptocurrency is vastly different than stocks since there are not any publicly available financial statements for any cryptocurrency project. Several indicators of cryptocurrency fundamental evaluations include merchant adoption rates and general cryptocurrency usage rates.
Since traders are more concerned with predicting price direction and market positioning, technical analysis is that the main weapon employed by traders. Technical analysis is that the forecast of future prices by analyzing historical price data by using various sorts of price indicators and charting tools. Price movements within the short-term are often erratic, thereby requiring traders to use technical analysis to time the market and profit from the volatility of costs.