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Stock Investing versus Trading: Choose the Right Approach

There are two main approaches to buying and selling shares of listed companies: investing and trading. Before choosing the right approach, it's important to recognize the differences between the two.

Investing

Trading

Actors

Called "investors".

Called "traders".

Principle

Buy & hold, investors buy shares and hold them in the long term.

Buy & sell, traders actively trade stocks, aka buying and selling in the short term.

Profit

Earned from capital gains as well as dividends that shared by the company over a period of time.

Only earned from capital gains, aka the difference in the price of buying and selling shares.

Goals

Long-term financial goals: buying a house, setting up a child's education fund, and achieving financial freedom.

Short-term financial goals: buying a new gadget or going on a vacation.

Risk

Tends to be lower as investors choose blue chip stocks with stable price increases.

Tends to be higher as traders choose second- or third-tier stocks with volatile prices in order to make a large buying and selling difference.

Analysis

Investors use fundamental analysis to determine which stocks to buy. Technical analysis is also required to determine when to buy or sell a stock.

Traders only use technical analysis.

Asset Protection Element

Investments generally have no asset protection element because investors do not have to worry about price declines.

The asset protection elements of trading are stop loss and take profit when the stock price reaches certain minimum or maximum limits.

Investing versus trading

While there are a number of differences between stock investing and trading, both have the same main goal: Making a profit. Either way, KAF ETRADE can be your mainstay in building your portfolio strategy.


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Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).



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