TRADES

Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. A system or network that allows trade is called a market.

An early form of trade, barter, saw the direct exchange of goods and services for other goods and services. Barter involves trading things without the use of money. Later, one bartering party started to involve precious metals, which gained symbolic as well as practical importance. Modern traders generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade involving more than two traders is called multilateral trade.

Trade exists due to specialization and the division of labor, a predominant form of economic activity in which individuals and groups concentrate on a small aspect of production, but use their output in trades for other products and needs. Trade exists between regions because different regions may have a comparative advantage (perceived or real) in the production of some trade-able commodity—including the production of natural resources scarce or limited elsewhere, or because different regions' sizes may encourage mass production. In such circumstances, trade at market prices between locations can benefit both locations.

Retail trade consists of the sale of goods or merchandise from a very fixed location, online or by mail, in small or individual lots for direct consumption or use by the purchaser. Wholesale trade is defined as traffic in goods that are sold as merchandise to retailers, or to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services.

Investing vs. Trading: What's the Difference?


Investing vs. Trading: An Overview

Investing and trading are two very different methods of attempting to profit in the financial markets. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter timeframe, taking smaller, more frequent profits.

Investing:

The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds, and other investment instruments.

Investors often enhance their profits through compounding or reinvesting any profits and dividends into additional shares of stock.

TRADING:

Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with annual returns of 10 percent to 15 percent, traders might seek a 10 percent return each month. Trading profits are generated by buying at a lower price and selling at a higher price within a relatively short period of time. The reverse also is true: trading profits can be made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets.

Investments often are held for a period of years, or even decades, taking advantage of perks like interest, dividends, and stock splits along the way. While markets inevitably fluctuate, investors will "ride out" the downtrends with the expectation that prices will rebound and any losses eventually will be recovered. Investors typically are more concerned with market fundamentals, such as price/earnings ratios and management forecasts.

A trader's style refers to the timeframe or holding period in which stocks, commodities, or other trading instruments are bought and sold. Traders generally fall into one of four categories:

  • Position Trader: Positions are held from months to years.
  • Swing Trader: Positions are held from days to weeks.
  • Day Trader: Positions are held throughout the day only with no overnight positions.
  • Scalp Trader: Positions are held for seconds to minutes with no overnight positions.

Traders often choose their trading style based on factors including account size, amount of time that can be dedicated to trading, level of trading experience, personality, and risk tolerance.