The stock market is risky but brings the same returns reward too. Intraday Trading vs Long-term Investment Basically, people make money in the stock market in two ways by trading or investing. This is where you can invest for longer periods of time, Or trade to make money through Intraday trading. However, these are two different ways to make money in the equity stock markets.
When you invest in stocks for the long-term In most cases, this means that you are keeping your investment for a longer period of time. Maybe one to five years or more. By comparison, Day trading means that you close all your positions before the end of the trading hours on the same day. You have not held a stock for more than one day, such as when you trade during the day as Intraday Trading.
Here, we will talk about the differences between Intraday Trading vs Long-term Investment. We will consider factors such as the holding period, Capital growth potential, risk circumstances, etc. Let’s see:
Intraday Trading Vs Long-term Investment
1. Period of Ownership
Long-term invested stocks are held for many years and short-term and daily volatility does not affect your investment decisions. The tenure here can range from one year to five years, or more as according to your wish. Intraday Trading vs Long-term Investment, In comparison with Intraday trading, you did not hold open positions for more than several hours on a trading day.
Holding periods can range from one minute to several hours for the same day, meanwhile, trading hours have to square off anyhow. Otherwise, it will be auto square off with the penalty charges.
2. Capital Growth
When investor determine the price if moves in the expected up-trend direction then traders will close their positions during the day trading hours before the end. For example, if you buy 200 shares of XYZ Ltd. at $ 100 and the price rises to $ 110, you sell the shares and make a profit. In the same way, with the help of tools such as stop loss, you will reduce your losses in the situation of a price suddenly gets dropdown.
However, in a long-term investment, short-term price fluctuations will not affect your decision. Holding stocks for years will allow you to create wealth through capital gains over time.
3. Stock Risks
Intraday trading and long-term investing come with risks, but intraday trading carries a high level of risk. This is because price fluctuations can be significant over the subject of several hours. Because the daily volatility of the market does not affect long-term stocks. Thus, the risks associated with long-term investments are reduced. Here, investors have the opportunity to build wealth through dividends and price increases over the years based on their analysis and skills.
4. Analyzing Technical Skills
Day traders need technical skills to analyze and study market trends. Intraday trading is also related to the psychology of the market, which doesn’t sustain the same for every day.
Intraday Trading vs Long-term Investment, its need to know the other hand, it takes skill to identify good and reliable stocks for long-term investments. For this such need, a deep study about the company. Here the investment decision will depend on the Business Model, financial strength, and company philosophy.
5. Information for Investors
Traders want to get more profit from daily price fluctuations. This can lead to huge losses. Intraday stocks are determined based on price fluctuations during trading hours. In such a way depends on volatility in stock markets. On the other hand, long-term investors do not rely on trends and invest based on fundamentals and company value over the years. They passively hold the stock until the desired price level is reached.
Overview of Intraday Trading vs Long-term Investment, Let’s take a look at the advantage and disadvantages of day trading and long-term investing.
Advantage of Intraday Trading
- When trading intraday or day trading, Can make big profits in a short time.
- You need less capital and use margin opportunities.
- You do not need to block your investments for a long time. So that you can trade more often and get higher profits frequently on the same day.
- Many reliable brokers offer intraday margin trading in stocks, providing high leverage for your capital.
Disadvantages of Intraday Trading
- Price volatility increases the risk of losing money. In some cases, full capital money also can be loose in case you didn’t set Stop Loss.
- Knowledge of technical analysis is very important, and you can’t rely on the advice of others.
- Profit Or loss gets decided on the same day there you will not get a chance to wait for the next day.
Advantages of Long-term Investment
- In the past, when you invested in the stock market for a long time (with the deep research that goes into it). You will be able to make a profit that exceeds the inflation rate. This allows you to expand wealth over the years.
- Long-term stock advantages from economic growth, which turns into higher incomes through increased consumer demand. which has a positive effect on the growth of the stock share price.
- Long-term investments not only increase the cost of capital. But it also allows you to generate higher returns through recurring dividends.
- Nowadays, it is very easy to invest in long-term stocks through Charles Schwab or online platforms.
Disadvantages of Long-term Investments
- There is an essential risk of loss of principal money if the Company does not perform as expected, leading to a drop in the share price.
- There is no leverage or margins for a long-term investment, you will have to pay the full amount according to the stock share current price during investing.
- Stock prices change from one minute to the next in many cases, investing can be more emotional than adhering to fundamental principles.
Long-term investment refers to a long holding period that can last from one to five years or longer. It also means that you won’t be able to use your money to make higher returns on other options.
Both intraday trading and long-term investment are proven ways to make money in the stock market. Long-term or Day investment decisions are based on demand, financial goals investment volume, and your risk profile. In addition, diversification in the allocation of your funds across different assets should be based on skills and experiences.