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How Does Stock Trading and Investing Differ?

How Does Stock Trading and Investing Differ?

While both are similar, they are not the same.

What are the differences?

Stock trading is when someone buys and sells shares of stocks within short periods, while investing is when you put your money into some form of “trust” that invests it for you with some percentage paid back to you at the end. It’s more like a business than just trading stocks.

The first way a person makes money from stock trading is by buying a share of a company for a specific price and then selling that share at a higher price once the market value goes up.

This means that you have made a profit from this business transaction.

However, if the value of the shares drops below what you purchased them for, you will lose money instead of gaining any. But if one decides to sell their shares as soon as they see their worth dropping below what they purchased it for, they will lose out on a lot of money.

Instead, it is suggested to purchase a certain amount of shares and then, after the price increases, sell those off one by one.

To have success with stock trading, you should learn as much as possible about what you are going to invest in. This way, you will get a better return on your investment once everything goes well.

Investing involves risks such as:

  • Possible loss of principal due to fluctuation in market value
  • Insufficient cash flow from dividends, interest, and other income
  • No guarantee that the fund(s) will meet its objective
  • risk of illiquidity
  • No guarantee that the investment advisor has complied with rule 15c2-4 or equivalent state provisions of federal regulations (if any).

Investors should consult their tax advisors to determine the suitability of such investments for them in light of their circumstances. Investment returns and principal value will fluctuate so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.

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Stock trade example

A person buys one share of Apple for $165/share for a total price of $1,650 ($165 x 1 share). The person continues buying shares until he has ten shares invested in Apple at a total cost of $1,650 ($1,650 / 10 shares).

The market value fluctuates between $180-$180 per share. On the day that the market value drops to $160 per share, the investor sells all his shares at the best buy order price ($160) = ($3,200 – $2,000) or a total of $1,200 in return.

Stock investment example

A person invests $500 into an account and is given a .25% (1/4 of 1%) interest rate on the money invested. This means that over one year, this person will receive $2.50 in return ($500 [invested] x 1/4 = $2.50 [interest earned].)

The investor can choose to take this money out but must pay taxes on it.

A person buys one share of Apple for $160/share for a total price of $1,600 ($160 x 1 share). The person continues buying shares until he has ten shares invested in Apple at a total cost of $10,500 ($1,600 per share x 10 shares).

On the day the market value goes up to $180 per share, the investor sells all his shares at the best buy order price ($180) = ($15,000 – 3,900) or a total of 11,100 in return.

The investor would have made a net profit of 2,500 from this investment. This is calculated by subtracting the total cost of all ten shares from the final sale price ($15,000 – $3,900). In this example, he has made a net profit of 2,500.

A person invests $500 into an account and is given a .25% (1/4 of 1%) interest rate on the money invested. This means that over one year, this person will receive $12.50 in return ($500 [invested] x 1/4 = $12.50 [interest earned].)…The investor can choose to take this money out but must pay taxes on it.

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