Position Trading vs Investing: Which Approach Fits Your Financial Goals?

In the world of trading, there are two major sects, and each beginner entering this world picks the sect that works best for them according to their financial goals and risk profiles. These sects are position trading and investing. These strategies have much to offer and vary based on time horizons, involved risks, market volatility, and more. Trading and investing can be done online through brokerage platforms where each trader or investor needs to register an account and deposit funds. 

These sects are a form of art, and anyone who can master them can excel in this field. The main difference between the two strategies is the time commitment. Trading requires a continuous time commitment and the trader’s attention, whereas investing involves time commitment differently. Investing is usually done for an extended period, meaning the investor’s capital is committed in one place. They can dissolve their position at any given time, but the profit margins may be affected.

As explained earlier, both these strategies are heavily practised online. For beginner traders making their way into this world, we suggest trying their hand at a demo account first. A demo account is a mimicked environment most trading and investing platforms offer. In this account, a beginner trader or investor can learn the ropes, face real-world problems, and gain hands-on experience without using real capital. 

In addition to the demo account, anyone getting started in investing or trading should deeply understand their concepts and dealings. This article will cover everything you need about position trading and investing, their differences, pros and cons, and much more. 

What is Position Trading?

Position trading is a form of trading in which the trader holds a position for a longer period, which is more than hours and up to a few months. This type of trading is the opposite of day trading, where the trader buys and sells assets in minutes and hours. A position trader monitors the market and price fluctuations closely. They then anticipate the market and find an entry spot in the market. 

An asset’s price is affected by several factors, and understanding these factors and using them to your advantage is what position trading is all about. For example, suppose a major tech company has been in a bullish trend in the market, and you understand their products, visions, and what makes them great. In that case, you can find an entry point before announcing a relative policy change or administration news. Successful trading requires a deep understanding of the market dynamics and the corporate world. 

Anyone can be a position trader and start making a profit quickly. The first thing to start in the field is making a trading account. Now, there are many different brokerage platforms out there for you to try but make sure you know the associated costs and the platform’s security measures before you register and deposit money. After choosing a platform you like, register with accurate information and deposit your funds. The fun part comes: select an asset class and research its past and current performance. Understand what factors affect its performance and how to leverage the information. Once you are confident in your knowledge, place a trade and wait for the outcome. Do not forget to put risk mitigation techniques in place and adjust the trade according to newer developments in the market. 

What is Investing? 

Investing is a form of trading which expands over a long period of time. An investment position may be kept for years and dissolved only when the investor is in need of capital or is retiring. Like trading, investing can be done using any asset class but the most famous form is investing in a multinational company like Coca cola or Microsoft. There are a number of online platforms that are used for investing. These platforms can be easily accessed from your hand-held devices and require you to register your account before depositing any capital. Once you are registered and have deposited the capital, you are free to invest in your choice of asset class. 

Like trading, anyone can be an investor and unlike trading, investing does not require you to sit in front of a screen and constantly monitor and adjust your trades according to market changes and price fluctuations. Investing has the power to bring generational wealth if it is done right and also, can help you retire early and enjoy life to the fullest. Having said that, it may take an investor some time and experience to understand the ropes and form positions that will be fruitful for them in the long term. 

We typically suggest demo accounts for beginner traders and investors because before you jump in a long-term position, you need to understand trading and get a hang of how the market and industries function. It is a lot to take in and surely, not an overnight job but it surely is worth the wait. 

Key Differences Between Trading and Investing

There are some key differences between trading and investing, and the following table discusses these differences clearly:

Pros and Cons of Position Trading

We know that trading is done in various ways, and traders work comparatively faster. Trading is generally very lucrative and relatively easy to conduct if the trader understands it deeply, and for that, it is essential to understand its pros and cons. 

Pros of Position Trading

The biggest pro of position trading is making a profit in a small amount of time and being a part of a tech-savvy community. If you play your cards right and take time to understand the trading concepts and how assets perform, you can make a good profit in no time. And all of this from the comfort of your own home and time. Another pro of position trading is the time commitment. It depends on how long you want to hold a position, so if you have completed a trade and made a profit, you can shut off your computer and do what you need uninterrupted. 

Cons of Position Trading 

The biggest con of position trading is the involved risk. Most of these short-term trades are planned around market fluctuation that may increase or decrease the price of an asset. So when the anticipated price fluctuation goes the unexpected way, the trader may incur huge losses. Another con of position trading is the constant market monitoring to ensure your position is safe. This takes a lot of time and effort. It is even more intense when trading global markets, which function in different timezones. 

Pros and Cons of Investing

We know that investing is conducted over a more extended period where the investor keeps a relationship with the asset and believes in its ability to grow and exceed expectations. However, as it is a money-making strategy in the long run, it has its pros and cons, which are as follows:

Pros of Investing 

The biggest pro of investing is that if it’s done right, you will likely retire early and live your life carefree. But this takes time, effort, and upfront capital. Another pro of investing is not having to sit in front of a screen and monitor trades and the fluctuating market daily. You can lay back, do what your typical day looks like, and wait for your investment to make your profit. Additionally, investors form a connection with the company, and if their innovations bring good to the world, your capital helps achieve that. 

Cons of Investing 

The most prominent con of investing is the time commitment. Most investments are made for a longer term, which may be years, so this means that your capital will be tied up in one position for a long time and in order to meet your profit expectations, you should not dissolve the trade. Another drawback of investing is the industry fluctuations. Imagine you are heavily invested in a company for a few years now and due to some changes in the industry or the market, the company decides to shut off its business. In such a case, your investment is probably not lost but the time and commitment that you gave to reap the benefits late is surely in vain. 

Trading vs Investing: Which is Right for You?

Trading is considered short-term, and investing is considered long-term. Trading and investing are both very versatile, and which is right for you depends on your financial goals, risk appetite, and the time commitment you can make to the art. Here, we look at each of these metrics in detail:

Financial Goals 

Trading is conducted by traders who seek profit in a short time, which can be a few seconds, minutes, hours, weeks, or months. Meanwhile, an investor is in it for the long haul, which may be months, years, or more. So, for any trader or investor, the choice between trading and investing depends on their financial goals. If you’re looking for short-term profits, trading is best for you. Investing is best for you if you’re looking for long-term positions and saving for the future. 

Risk Appetite

Trading is riskier than investing because it takes advantage of a volatile market’s price fluctuations. People can choose to be traders or investors and make a profit in a short or long period based on their risk appetite. 

Time Commitment

Trading requires a reasonable time commitment because it is short-term, and traders must monitor and adjust their trades accordingly. In contrast, in investment, the investor commits years to a position and makes a profit after a very long time. So, both forms require a time commitment, but in different ways. 

In conclusion, position trading and investing are two forms of profit-making using asset classes. Position trading is holding a short to medium-term position and making a profit. In contrast, investing is when an investor has a position for an extended period and is interested in the asset. Both strategies are great for implementing and making a profit. However, traders and investors choose a plan to implement based on their financial goals, risk appetite, and time commitment. 

These strategies can be tricky initially and may require additional reading of relevant material. For beginner traders looking to start position trading, we recommend using a demo account to practice and gain relevant experience. Most online trading platforms offer a demo account, a simulated environment where traders can practice trading and experience real-world market fluctuations without using real capital. This is most useful for traders new to the trading world who want hands-on experience. 

FAQs

Is Position Trading Profitable for Beginner Traders?

Position trading is an excellent strategy to implement if traders understand it. For beginner traders looking to start position trading, we recommend using a demo account to practice and gain relevant experience. Most online trading platforms offer demo accounts, a simulated environment where traders can practice trading and experience real-world market fluctuations without using real capital. This is most useful for traders new to the trading world who want hands-on experience. 

Are Copy Trading and Position Trading the Same Thing?

No, copy trading and position trading are not the same thing. Copy trading involves mirroring a trader’s trade and making a trade, whereas position trading involves holding a position for the short to long term and generating a profit. 

When Is the Best Time to Start Investing?

The best time to start investing depends on the trader’s goals and financial situation. A trader may begin investing today, which may work out great for them, or they may begin a year from now, which would still work out great for them. The success of trading does not depend on the time you start but on the strategy you implement and the experience you gain.