In the world of stocks there are so many terms that may still not be understood by ordinary people. So, novice investors should be diligent to learn and seek as much information as possible before starting to invest. One of the terms that are most often encountered at the beginning of saving stocks is the term stock investment and stock trading. What is the meaning of stock investment and stock trading? And what is the difference between the two? Let's see together below.
What Are Stocks?
Before we go deeper into understanding the meaning of stock investing and stock trading, let's start from understanding the stock itself first. Shares are proof of ownership of a company which is a claim on the income and assets of the company. That means when you buy a stock, you are automatically one of the owners of the company, and you will also get a share of the profits from the company.
What is Stock Investment?
So, stock investment can be interpreted as an activity to invest in companies that are already listed on the Indonesia Stock Exchange and trade their shares. Investment is passive. That is, you as an investor do not run the business directly, you only invest a certain amount of funds to then be managed by the company in question.
It's the same as doing business, besides being able to benefit, investing in stocks can also not provide benefits for you. Therefore, it is important to recognize and know the information of the company where you invest before you decide to invest. Because by managing risk factors well, you will have a greater chance of being able to receive benefits from your investment.
What is Stock Trading?
Stock trading has a meaning as an activity of buying and selling shares by taking advantage of market price fluctuations every day. If in stock investing you are more passive, in stock trading you will be more active. This is because as a stock trader, you will give time to analyze the market and decide the best time and price to make stock transactions.
That way, you can get the best capital gain from the price difference that occurs when you buy a stock and when you sell it.
Difference Between Stock Investment and Stock Trading
For more details, the following will explain what things differentiate stock investing and stock trading:
1. Principle: Buy and Hold vs Buy and Sell
A stock investor tends to hold the principle of buy and hold when investing in stocks. This happens because usually a stock investor invests for long-term plans.
Thus, stock investors tend to be less concerned with the ups and downs of stock prices per day. The time period is uncertain, it all depends on each investor. However, usually an investor will sell his shares when his investment goals have been met.
Meanwhile, a stock trader holds the principle of buy and sell. Traders will buy shares at a certain price, and will sell them in a fairly short period of time as long as the stock value is within the range desired by the trader. Traders usually expect higher returns than through ordinary investments.
2. Fundamental Analysis vs Technical Analysis
Because a stock investor tends to invest for the long term, the analysis used by an investor is a company fundamental analysis.
Company fundamentals are basic and important information about the company such as the company's financial statements, company performance, the rate of development of its shares within a certain period of time, and others that can be used as a reference in assessing the company's performance in managing its business.
Investing in companies with good fundamentals will reduce the risk of loss for investors.
Meanwhile, stock traders usually do more technical analysis. This analysis can help traders see the movement of stocks in the short term.
This is because trading is more sensitive to market sentiment and market conditions than company fundamentals. Therefore, the analysis carried out must be more thorough and detailed on all risk factors.
The next difference is risk. If you look at the risks of both, the risk in investing in stocks is much lower when compared to stock trading. Because the risk is lower, the results obtained tend to be lower when compared to stock trading.
Stock investors tend to be more selective in choosing companies that will accept their investments, investors usually prefer blue chip companies that are already well-known and proven to have good fundamentals.
Meanwhile, stock traders tend to have a higher risk, traders usually choose third-class stocks or stocks that have just been listed on the stock exchange. Traders choose these companies because their stock prices tend to be cheaper than blue chip stocks but have the potential to experience high fluctuations depending on market sentiment.
That way, the hope is that traders can buy shares in large quantities and sell them when the shares experience a significant increase.
The things above are some of the things that distinguish between stock investing and stock trading. Now as a beginner in the stock market you can determine which one is the most suitable for you.
One of the rules in the stock world is high risk high return, the higher the risk you dare to face, the higher the probability of benefit you will get. Now, by choosing the right securities, you will get a lot of help in managing the risks you are about to take.
One of the securities that offers interesting features that can help you in stock trading is RHB Tradesmart ID. With the smart app, you can learn about stock trading and become even more proficient in the world of stocks.