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Stock Trading vs. Investing: What’s the Difference?

Stock trading is about buying and selling stocks for short-term profit, with a focus on share prices. Investing is about buying stocks for long-term gains.

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Andrea Coombes

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Expertise

• Personal finance reporter for 16+ years
• including work for the Wall Street Journal and MarketWatch.

Andrea is a former NerdWallet authority on retirement and investing. Her stories have appeared in The Wall Street Journal, the SanFrancisco Chronicle, MarketWatch and elsewhere. She has been interviewed onTV and radio, including NPR’s “All Things Considered,” and quoted by national publications such as Fortune, Time and CNBC.

Writer

Andrea is a former NerdWallet authority on retirement and investing. Her stories have appeared in The Wall Street Journal, the SanFrancisco Chronicle, MarketWatch and elsewhere. She has been interviewed onTV and radio, including NPR’s “All Things Considered,” and quoted by national publications such as Fortune, Time and CNBC.

Pamela de la Fuente

Managing Editor

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24 years of experience

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Managing Editor

Pamela de la Fuente is a managing editor of NerdWallet's personal finance content. She leads budgeting, money-making, consumer credit and and debt coverage.

Ask her and her talented team about why credit scores matter, how to save money on your grocery bill, finding the right side hustle, how to protect your identity for free and more.

Previously, she led taxes and retirement coverage at NerdWallet.

Pamela joined NerdWallet after working at companies including Hallmark Cards, Sprint Corp. and The Kansas City Star. She has been a writer and editor for more than 20 years.

Pamela is a thought leader in content diversity, equity, inclusion and belonging, and finds ways to make every piece of content conversational and accessible to all.

She is a graduate of the Maynard Institute's Maynard 200 program, and the National Association of Black Journalists Executive Leadership Academy. She is a two-time winner of the Kansas City Association of Black Journalists' President's Award. She was also founding co-chair of NerdWallet's Nerds of Color employee resource group.

Trading and investing both involve seeking profit in the stock market, but they pursue that goal in different ways.

Brokerage firms

on Charles Schwab's website

on E*TRADE's website

on Vanguard's website

on Fidelity's website

Trading vs. investing

The main difference between stock trading and investing is that traders invest for the short-term, while investors hold onto assets for the long-term. Both are styles of investing, and oftentimes, the two terms are used interchangeably.

The focus of traders and investors is also different. Traders often focus on a stock’s technical factors rather than a company’s long-term prospects. What matters to traders is which direction the stock will move next and how the trader can profit from that move.

Investors study a company’s potential for long-term growth or value, then buy and hold, but traders often take advantage of small mispricings in the market, such as when political uncertainty in a foreign country temporarily pushes down the share price of a U.S. manufacturer.

So-called scalp traders might be in a position for just minutes. Day traders are focused on the trading day, while swing traders invest for days or weeks.

» Looking to trade? We reviewed providers to find the best online platforms for day trading.

Trading wisely

If you're interested in trading, here are some things to consider to minimize your risk:

Create a plan that dictates when you’ll buy and sell. For example, you might decide to sell if a stock rises or falls a certain percentage.

Stick to your plan. Even experienced traders let their reasoning for holding certain stocks shift.

Figure out how much money you can afford to lose, and don't trade more than that.

Go in with open eyes. The stock market's long-term average return is 10%, and studies have shown that it's extremely difficult for even professional traders to beat the market.

Know your taxes. You might be able to take a tax deduction for trading costs, but you might also owe taxes. Rates on short-term gains range from 10% to 37%. Learn more about short- and long-term capital gains.

» Check out our guide to day trading safely

Investing wisely

Investing is a way to build long-term wealth. Remember that 10% average stock market return? Sometimes it's lower, sometimes it's much higher, but you have to stay invested to reap the rewards.

Here are some things to consider:

Create an investment plan for buying, selling and rebalancing your holdings. For example, some people sell some holdings and buy others to get the portfolio back in line with original goals after market moves have pushed it out of whack.

Consider index funds, which don't try to beat the market, but mirror the performance of a market index, such as the Nasdaq or the Standard & Poor’s 500.

Know your investing strategy. That includes knowing what your goals are (retirement, college tuition, etc.) and how much risk you can tolerate.

Be prepared for the long haul. You’ll need patience and discipline to stick through the market’s ups and downs.

» Ready to get started? Read How to Start Investing: A Guide for Beginners

Helpful resources