Stock market trading has the potential to make you rich if you do it right. Every day, new traders enter the market in the hope of generating profits. But it is not as easy as you might think.
The stock market is a volatile place, where you see lots of fluctuations throughout the day. The prices constantly rise and fall, resulting in gains or losses for traders.
Speaking of stock market trading, you need to first decide what type of trading you want to get into. For example: scalping, spread trading, long-term trading, short-term trading, and others.
The type of trading you choose depends on your financial goals. If you are confused between short-term and long-term trading, you are in the right place. We have drawn a detailed comparison between the two types of trading for better understanding.
Difference between Short-term Trading & Long-term Trading
To gain a better understanding, we have compared short-term and long-term trading based on a few important factors. Take a look at the pointers below.
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What does it mean?
Long-term trading refers to selling and buying stocks with duration of 1+ years. In contrast, short-term trading involves selling and buying stocks within a couple of months to a few weeks.
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Approach
Long-term trading requires understanding the fundamental and technical aspects of the trade market. It helps investors to identify suitable stocks, as well as determine entry and exit points.
On the other hand, short-term trading relies on the existing stock price action driven by supply and demand. Active investors often engage in intraday trading, seeking to profit from daily market movements. To be successful in short-term trading, you need to have some experience.
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Returns
Long-term traders prioritize a buy-and-hold strategy, aiming for higher returns over a longer period. They invest in hostile market instruments and do not seek quick profits.
Short-term trading is riskier than long-term trading. Traders who aim to capitalize on market fluctuations for higher returns tend to opt for short-term trading. However, it is important to note that short-term trading can also lead to losses.
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Time required
Long-term investors typically spend less time researching stocks, prices, and companies. As long-term traders, you need to monitor market performance and keep yourself updated on price action, trading terms, and government policies. Unlike short-term trading, long-term trading demands regular attention.
Short-term trading gives maximum returns in a short period. It allows traders to gain profits within a short period as the security matures early.
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Suitability
The choice between short-term and long-term trading depends largely on your investment objectives. Short-term trading is suitable for those who need immediate funds, while long-term trading is beneficial for those planning for future needs.
It is crucial to evaluate the pros and cons of both approaches before making an investment decision.
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Goal
Long-term traders seek to gain steady profits over the long run. They invest in stocks that they predict will rise in value in the future, aiming to accumulate capital for future needs.
Short-term traders, on the other hand, seek to generate substantial profits within a shorter time. They tend to prioritize price action instead of holding shares for future requirements.
Short-Term Trading: Pros & Cons
Pros
- It allows you to make money or generate profits faster. In some cases, you can even earn profits in a day.
- It includes short-term risk. If you believe that you have taken a wrong decision, you can release the invested capital and reinvest it in new stocks.
Cons
- Short-term trading is highly unpredictable as it is difficult to figure out the status of your capital in the future.
- Short-term trading demands a lot of attention. It requires you to continuously monitor the market conditions.
Long-Term Trading: Pros & Cons
Pros
- It is less stressful as you can ignore the current market conditions.
- It is less time-consuming.
- It allows you to take advantage of compounding. What we mean is that you can invest back the dividends to generate more profit.
- It helps you save taxes.
Cons
- It requires you to invest the capital for the long term.
- It requires you to have in-depth knowledge of trading.
Short-term trading or long-term trading? Which one is better?
Well, there’s no definite answer to this. Both short-term and long-term trading has their advantages and disadvantages. It cannot be said that long-term trading is a better option than short-term trading and vice versa.
It is completely on the trader what they want. You should choose between the two depending on your investment goals.
Final Words
Both short-term and long-term trading is popular trading options among investors. Now that you know the difference between the two, it should be easier for you to decide which is better for you. While long-term trading offers slow gains over a long period, short-term trading generates more profit within a short period. Also, long-term trading is riskier than short-term trading.
