If you are thinking of getting started in the complicated but at the same time wonderful world of financial investments, it is normal that more and more doubts arise and that you are asking yourself many questions. Surely, one of the most frequent is to know if it is more profitable to do day trading or long-term investment.
Next, we will present the fundamental differences between day trading and long-term investment, with the aim of encouraging you to try your luck in this activity, making the appropriate investments and obtaining benefits.
What is day trading?
Experts agree that day trading is not for everyone and there are a few things you should keep in mind before you start investing or doing trading in the financial markets.
Day trading has become very popular in recent years. Technology has contributed to this because today we can have a large amount of market information very quicklyin real time, and through our mobile devices.
As a result, many more people have access to the financial markets through day trading, trading throughout the day to profit from price volatility.
It is an investment strategy whose purpose is profit very quickly. It consists of the purchase and sale of financial instruments (such as currencies, shares, raw materials, indices, etc…) with the aim of close positions at the end of the day to benefit from small movements in the price.
What risks does day trading have? The smaller the time frame you trade, the higher the risk.
What is long-term investment?
Long-term investments are, strictly speaking, those that are held for a period between 12 and 18 months. But in reality, when we talk about long-term financial investments, the horizon is usually much longer.
Strategies must be based on taking advantage of all that time, making it our ally. They are distinguished precisely by their duration, since these investments require a lot of time to bring them to fruition, but it is usually compensated with higher profit margins.
Long-term investments are usually raised under a conservative or moderate profile. They are usually stable investmentsso that they can last over time without suffering serious damage.
What is the difference between day trading and long-term investing?
The day trading It is characterized, as we have anticipated, by carrying out purchase and sale operations of financial instruments in short periods of time. Sometimes, an operation is carried out in a few hours or minutes.
On the other hand, long term investors they design the planning of their investments with projections of longer periods of time. It’s about the classic “buy and sit and wait” how rich has made the well-known investor Warren Buffett. This investment method is completely opposite to the previous one.
Similarly to the previous point, the day trader it is distinguished by its focus on stock or instrument prices regardless of the company’s direction. They focus on achieving high profitabilityas they seek to generate more money to then re-invest in longer terms.
The reason for being a long-term investment is that the longer the investment lasts (with the benefit of dividends reinvested) the more profitable the values will be. Put more simply, investing for the long term works well because when you invest in high-potential companies whose stocks have value, you boost returns and risk is minimized that you can run from losing money. In this way, to invest in the stock market in the long term it is basic and necessary to be a patient and calm investor.
Which type of investment is better: day trading or long-term investment?
To answer this question between day trading or long-term investment, we have to bear in mind that although long-term investment reduces the risk of suffering losses, the data shows that the vast majority of operations carried out in the stock markets values are short-term, that is, there is a clear predominance of day trading.
The volatility of the Stock Exchanges, the automatic purchases driven by technology and the massive access to the markets by investors have triggered speculation and eager for quick profits. This has clearly displaced the percentage of operations that are made with the intention of “buy and hold” (buy & hold), a strategy widely touted by the aforementioned and famous investor Warren Buffett, one of whose most famous phrases is that the ideal period to hold a stock in which he invests is “forever”.
That said, if we talk between day trading or long-term investment, it is clear that There is no type of investment better than another but investment styles that best suit our investor profile.
- If you are a person who does not like risk, you are easy to understand the graphs but you do not want or cannot be aware of a screen all day to see how the market evolves, long-term investment is the one that best suits you. your needs.
- If, on the other hand, you are a person who has time and you like risk, trading could fit with your investment style.
In addition, you do not have to choose one or the other investment style since day trading or long-term investment they are perfectly compatible and you can practice one and the other.