MATI Trader: What is trading? And why choose it over investing?

In the last few months, I’ve been posting crucial articles on trading strategies,tips, tools and tricks. And yet, I’ve never posted an article on what trading is and why I prefer it to investing.

So let’s start off and sum up Trading in a nutshell

If you think about the general term for “trading’, it’s exchanging one item for another item.

And here’s a simple example, so you can understand this better.

Let’s say you buy an unpolished and dirty table for R400. You believe that you have the tools and the techniques to furnish the table and sell it for R800.

So you buy the table, take it to your garage and start to polish and clean the table until it’s in mint condition!

You then take a photo of the table, that you’ve revamped, and you sell it for R800.

This means you made R400 more than what you bought it for. You just made a 100% return on your table.

If you can understand this example, then trading will be a breeze for you!

When we talk about trading in the financial markets, it’s very similar to exchanging a product or service.

You’ll buy something for a low price, anticipating that the price will go up, and sell it at a higher price for a gain.

This is very similar to the table you bought for R400 and sold it for R800…

So, Why I do I choose trading over investing?

You first need to understand that the big difference between trading and investing is ‘time’.

Trading is when you buy a financial instrument for a low price, and you try to sell it at a higher price or vice versa.

But the only difference with trading is that, you’ll hold your trade for a short period of time.

Like a couple of days or weeks!

For me a short period of time is holding a financial instrument for anything less than six months.

Investing, on the other hand, is when you buy and hold your financial instrument (mainly shares) for a much longer period of time. Anything more than three years is, what I consider a long term hold.

The problem with investing however, is that you can’t profit from the ups and downs in the market, because you’ll just be holding onto the financial instrument for a long time.

And that’s why I find it much more fun and profitable to trade in the short term rather than invest for a longer period of time.

So now you know!

“Wisdom yields Wealth”

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