All about stock trading and stock investing

I am continuously receiving queries from friends, colleagues regarding the difference and possibility with both stock trading and stock investing. This article intended to those who are newbie’s to direct equity market and to have a basic idea before start investing or trading.

There are two types of investors. One is, a stock trader and the second is stock investor.

A stock trader always interested on short term profit by buying and selling shares in a very short period of time, may in the same day. Their work and action entirely depends on speculations. In other words, short time trading doesn’t have more differences from gambling because both are different forms of speculations. Stock trader using different techniques to analysis a stock. The most popular analysis method using by a stock trader known as Technical Analysis.

Technical Analysis:

This is a study based on the past and present price and volume movement charts and lists on a stock. A technical analyst providing recommendations on the basis of these information’s and this analysis method uses little or no information about the actual business behind the stock.Below is a well explanation on Technical Analysis from Wikipedia:

Technical analysis is a financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market data, primarily price and volume. In its purest form, technical analysis considers only the actual price behavior of the market or instrument, on the assumption that price reflects all relevant factors before an investor becomes aware of them through other channels. Technical analysts may employ models and trading rules based, for example, on price transformations, such as the Relative Strength Index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns.

There is no famous names as the legend technical analyst.

Stock Investors and there in the other group and entirely different from Stock Traders. Instead of short term focus, a wise stock investor should invest in a good company with a long term profit focus. They are achieving the target of buying and holding a stock by doing proper research and study about a company about the possible profit possibilities in the long run. Legend investors like Warren Buffett, John Templeton, Merry Lynch, George Soros all using fundamental analysis path to identify the proper investment candidate and invests on their stock for very long term focus.

Fundamental Analysis:

Using fundamental analysis approach, an investor analyzing and retrieving all the information about a company and its profit possibilities. A major study will take in place on profit ratios, debt ratios and management capability to identify the investment suitability on a companies stock or share. Fundamental analysts also research on companies business, products, or services and its present popularity, future possibility and growth potentials to identify the future business value of the company.Through fundamental analysis, a good analyst can identify and recommend the correct price of the stock is proper to buy the stock or not. Also, monitoring on portfolio is a must required when buying shares using this method. Monitoring enable an investor to identify whether the stock is over prices to sell or the requirement of hold.

Basic requirements for trading and investing shares:

Both, trading and investing, can be done by opening an online or off line trading account with a good stock broker in your area. Using online account, one can place orders to buy or sell shares conveniently using an internet connection, from any were in the world, using brokers online trading website. Only requirement is, you have to transfer required amount from your bank account to trading account to buy stocks, using the website features providing by the broker. When selling, you can back transfer the money from trading account to your bank account.If you are using the off line account, one should call the broker manually and need to place an order to buy or sell shares. Customer has to pay to broker in the form of cheque to buy shares and will pay back in the form of cheque if sell shares.Selection of on line or off line account is depends on your convenience.Direct stock market entry required enough knowledge and tile to research and study about stocks that you are going to purchase. Direct equity entrance is not recommended to a newbie because his ignorance about the requirements. Instead of direct equity entry, disciplined investment in good mutual funds, index funds or exchange traded funds (ETF) are best suitable for them to get 100% equity exposure to their portfolio.I hope the article will be useful to those who are newbie in investing and providing required information he seeks on the same.

Feedback on the same to or Comment here, will be appreciated.