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#13 Trading or investing: What's the difference?

16.01.2024
Felix Niederer

Trading can be tempting. The thrill of a successful trade releases dopamine. But what about the long-term costs? In this podcast, we take an in-depth look at the difference between trading and investing.

Investing: Long-term perspective in the fundamental economic cycle

Investing means putting your money into the fundamental economic cycle for the long term. You lend money to companies in the form of bonds or shares in the hope that they will generate profits over an economic cycle. Patience is required here, as economic cycles can last several years. Investors must be prepared for the fact that results take time.

Trading: Short-term profit opportunities through price movements

In contrast, a trader acts in the short term and tries to exploit price inefficiencies or incorrectly perceived prices on the market. They do this by making a large number of trades in the hope that they will be successful. Traders do not trade in terms of the fundamental economic cycle, but try to predict short-term market movements. There are different types of traders, from traders who trade for months to day traders who complete their trades within a day. There are even high-frequency traders who use algorithms and trade within milliseconds.

Differences between professional and private traders

For a private investor or trader, it is important to understand that trading costs play an important role. Many strategies that work on paper or in an Excel spreadsheet do not work in reality, as transaction costs are incurred with every purchase and sale. Be it in the form of brokerage fees, broker fees or the bid-ask spread. In Switzerland, there is also the stamp duty that private investors have to pay.

Another difference between professional and private or hobby traders is the investment of money and time. Professionals invest in access to economic information, faster trading algorithms and buying order flow from trading apps.

Trading can be tempting, especially as an introduction to the stock market world. The thrill of a successful trade releases dopamine, but the long-term costs in terms of time and money can be significant. Many people have traded for years and lost a large part of their wealth through transaction costs.

Have you made profits or suffered losses with your trades over the long term? What experiences have you had with trading? Feel free to send me an e-mail to share your experience.

Disclaimer: We have taken great care with the content of this article. Nevertheless, we cannot exclude the possibility of errors. The validity of the content is limited to the time of publication.

About the author

author
Felix Niederer

Founder and CEO of True Wealth. After graduating from the Swiss Federal Institute of Technology (ETH) as a physicist, Felix first spent several years in Swiss industry and then four years with a major reinsurance company in portfolio management and risk modeling.

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