Chapter 16. Choosing between Investing and Trading

In This Chapter

  • Understanding the differences between investing and trading

  • Checking out the tools of stock trading

  • Sticking to important rules for safe trading

You may have heard of stock trading and wondered how it compares to stock investing. Rest assured that trading and investing are two different animals. Trading is advantageous when you're looking to profit from short-term swings in the market due to volatility. However, trading can be dangerous because the market's short-term movements can be quite unpredictable. The only reason I'm including trading in this book is because you, dear reader, should get some do's and don'ts in this short-term venture. If you're going to trade stocks, you should have some guidelines to keep the downside to a minimum. I explain what you need to know in this chapter.

The Differences between Investing and Trading

Stock investing and stock trading may sound similar, but they're actually pretty different:

  • Investing looks primarily at fundamentals (earnings, sales, industry outlook, and so on), which tend to be long-term drivers of stock prices. The long-term investor waits out the zigzags as long as the bullish outlook and the general uptrend are intact. The good part is that investing involves fewer transaction costs (you aren't constantly buying and selling stock) and usually lower taxes (long-term capital gains typically are taxed at a lower rate than short-term gains). The bad part is that sometimes ...

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