• English
  • 简体中文
  • 繁體中文
  • Tiếng Việt
  • ไทย
  • Indonesia

Day Trading vs. Investing, Which Is Better

Cameron Murphy

Apr 22, 2022 14:18


Securities trading may be done in two ways: day trading and investing. Many differences, however, distinguish each strategy and make it worthwhile to use—many individuals prefer to use both.

Learn about each strategy and what you should think about if you're deciding between them or considering trying both.

What Is the Difference Between Day Investing and Day Trading?


We are investing in purchasing and keeping a portfolio of stocks, baskets of stocks, mutual funds, bonds, and other investment instruments to build wealth over time progressively.

Investments are often kept for years, if not decades, to benefit from interest, dividends, and stock splits. While markets are destined to fluctuate, investors will "ride out" downtrends hoping that prices will return and any losses will be recouped soon. Market fundamentals, such as price-to-earnings ratios and management projections, are often more important to investors.

Even if they don't check the performance of their assets daily, everybody with a 401(k) or an IRA is investing. The purpose of a retirement account is to increase it over decades, so day-to-day swings of various mutual funds are less significant than continuous growth over time.


Buying and selling stocks, commodities, currency pairings, and other products regularly is what trading entails. The objective is to outperform buy-and-hold investing in terms of returns. 

While investors may be satisfied with 10% to 15% yearly profits, traders may strive for a 10% return each month. Buying at a lower price and selling at a higher price within a short period generates trading gains. Trading gains may also be gained by selling at a higher price and purchasing to cover at a lower cost to profit in falling markets (known as "selling short").

While buy-and-hold investors wait for less lucrative positions to mature, traders strive to profit quickly and often utilize a protective stop-loss order to shut off losing holdings at a predefined price level. To uncover high-probability trading setups, traders often use technical analysis tools like moving averages and stochastic oscillators.


Investing and trading are the two categories of the stock market for wealth building. On the other hand, investing and trading are two quite distinct ways to build wealth or profit in the financial market. Imagine you and a buddy purchased the same quantity of seeds for planting in your fields today, but you sold them to someone else to make a profit. And your buddy planted the seeds and waited a few years for them to produce fresh seeds. 

He spread new seeds for years, finally selling many more sources than were purchased. He would have earned much more profit by investing in his seeds than you would have made by selling your seeds.

This is the distinction between investing and trading. Let's look at five important differences between investing and trading to discover how to do the same in financial markets.


Trading is the practice of owning stocks for a brief time. It might be for a week or even just a single day! Traders retain equities until they get a short-term high return while investing is a buy-and-hold strategy. Investors invest for a few years, decades, or even longer. Short-term market changes are unimportant in a long-term investing strategy.

Capital Gains

Traders keep an eye on the market's stock price change, and traders may sell their stocks if the price rises. Said, trading is the art of timing the market, while investing is the art of building wealth over time by compounding interest and dividends by keeping high-quality equities.

Risk Both trading and investing, without a doubt, include capital risk. On the other hand, trading has a more significant risk, and possible reward since the price might go high or low in a short period.

Investing takes time to master since it is an art. It has a lower risk and lower return in the near term, but compounding interest and dividends may result in more significant returns if kept for a longer time. For a more extended period of time, daily market cycles have little impact on excellent stock investments.

The Battle of Art vs. Skill

To put it another way, trading is like a one-day cricket match, but investing is like a test match. On a one-day game, you'd be watching skilled players in the squad who are expected to hit fours and sixes to score more runs.

On the other hand, the art of the game may be viewed in the test match! On the other hand, traders are trained, technical people who pace the market and understand market patterns to achieve more significant gains in a shorter period. It has something to do with market psychology. On the other side, investors research the companies they wish to buy. Learning business basics and committing to being engaged for a longer period are also important aspects of investing. It everything has to do with the company's philosophy.

Traders invest money in a stock for a limited period. They purchase and sell quickly to take advantage of the market's more significant earnings. Missing the appropriate moment might result in a loss. They examine current company performance to achieve higher prices and book profits in the near term.

Instead of following the crowd, investors invest in value. They support for a longer time and maintain a close watch on their own companies. They are patiently waiting for the stock to attain its full potential. Those that fulfill their financial objectives are successful in the end!

Returning to our scenario, you are the one who must determine whether or not to sell the seeds for a more fantastic price. Your objective is to make a modest profit in a short period or to hang on and develop more seeds to sell at a much greater price in the long run.


Investing vs. Day Trading

Day trading is not considered investing in the conventional sense. While "investing" is a broad phrase, it's well-known that buying stocks or bonds and holding them for the long term is the most effective method to produce steady, positive after-tax returns.

Even when their assets increase in value, long-term, buy-and-hold investors seldom experience the emotional fluctuations that most day traders do. Instead of day trading, you might build and manage a portfolio of low-cost exchange-traded funds (ETFs) to increase your chances of making a profit over a lengthy period.

Long-term investors are in an excellent position to diversify their portfolios and reduce the risk of severe losses. Day traders who purchase and sell just a few well-known companies have substantially less diversified portfolios, which means that the movements of any one stock have a far greater impact on their financial well-being.

Is Day Trading Considered A Kind of Gambling?

The similarities between day trading and gambling are undeniable. "The activity of risking money or other stakes in a game or wager," according to the dictionary definition of gambling. When you make a day trade, you're wagering that a stock's unpredictable price fluctuations will trend in the direction you want.

The few effective day traders (who may be at institutions) are incredibly well-versed in how markets move in the short term, just as elite poker players study and practice constantly to succeed at the game. If a rookie poker player faced a table of specialists, they may win one or two hands but would probably lose money in the long run. While day trading isn't the same as gambling, one thing is sure: it isn't lucrative most of the time.

Are Penny Stocks And Day Trading the Same Thing?

They aren't, no. Although "penny stocks" and "day trading" are two distinct phrases, they are sometimes used interchangeably in numerous settings. Penny stocks are those that trade for less than $5 per share. The act of purchasing and selling a stock on the same trading day or within a similarly short time period is known as day trading. Although many day traders prefer to buy and sell penny stocks, day trading is available for any stock, even blue-chip companies.

Some day traders purchase and sell penny stocks primarily because of the potential for a large percentage gain in a short period. For an investor to get a 100 percent return on their investment, a stock valued at $1 just has to increase $1 in value. A stock trading at $100, on the other hand, would have to acquire another $100 in value before achieving the same 100% gain. Day traders frequently attempt to profit on fast (and random) upward moves in penny stocks to grab huge percentage gains, even though stock movements are very unpredictable on any given day, and profits are far from assured.


Taxes On Day Trading

You could gain money if you acquire stock and then sell it on the same trading day. However, you'd have to pay taxes on the gain, which is the difference between the price at which you sell the stock and the price you bought it. The tax rate on short-term capital gains is the same as that on regular income (e.g., the money you earn by working).

This tax rate is generally greater than the tax rate on long-term capital gains, which is evaluated only after a stock or other investment has been in your portfolio for a year or more. Another reason to keep your assets for at least a year is the much higher tax rates applicable to short-term capital gains.

Aside from its inherent risk when short-term deals are subjected to much higher tax rates.

Is It A Brilliant Idea to Day Trade?

For the great majority of day traders, day trading is not worth it.Anecdotally, it's often assumed that 95 percent of day traders lose money in the end, and it's been experimentally shown that about the same amount of unsuccessful day traders continue to trade while losing money. If you're considering day trading for the first time, you should know that gains are difficult to come by. Day trading may be profitable, but you'll be in very little company.

The paradox of day trading is that depending on how the stock market is doing, it may seem to be a terrific idea. Day trading is simply betting on a stock's short-term volatility (or price movement) on a particular day. Day traders purchase a stock at one point during the trading day and then sell it before the market shuts. If the price of the stock increases while the day trader possesses it, the trader may profit from a short-term capital gain. The day trader suffers a short-term capital loss if the price falls.

Transaction costs are one of the main reasons day trading is a terrible idea. Taxes and fees, such as trading commissions, are the two most apparent transaction expenses. If you buy a stock and sell it before a year, any rise in its value is taxed at your ordinary-income tax rate, which is likely to be much higher than the tax rate that would apply if you kept the stock for a year or longer. Depending on the trading platform you use and the securities you're dealing with, you may be required to pay a commission each time you buy or sell a stock. For day traders, these transaction costs may add up quickly.

Day trading is often a losing venture due to the intrinsic structure of the financial markets. Stock price swings from minute to minute on any given day are essentially random, and they tend to respond very instantly to any new publicly accessible information. 

Furthermore, you're trading against a massive group of experienced institutional investors and high-frequency trading computers when you issue a market order to buy or sell. It's pretty improbable that you know anything that expert investors don't unless it's unlawful insider knowledge.

There are several reasons to avoid day trading outright, given that successful day trading is a rare achievement — and much unusual on a sustained basis. You worked hard for your money and should not jeopardize it. It's fair to argue that day trading isn't worth the risk, especially when considering the significantly increased tax rate applied to short-term transactions (sales of any equities held for one year or less).

Is Day Trading A Viable Way to Make Money?

Day trading is not always successful, but it may be rewarding. By correctly timing the market, investors may occasionally foresee a stock's moves and make six-figure returns. These traders may be dabbling in penny stocks to obtain their high profits, or they may just get fortunate every now and again like many people do at casinos.

Some traders make money in professional settings, leave their investing businesses, and label themselves "successful" day traders — without ever risking their own money in any deals! Non-professional investors who attempt to study day trading with their own money are unlikely to succeed.

An individual investor may make huge returns on rare occasions. On the other hand, day trading is significantly more prevalent in terms of destroying lives or financial circumstances.


Fundamental Analysis vs. Technical Analysis

Day trading is more reliant on technical analysis, which employs charts and indicators. Fundamental research, such as earnings reports, news, financial measures, and ratios, is increasingly important in investing. On the other hand, day traders are more concerned with the price movements of a stock, whilst investors are more concerned with the underlying firm. 

Day traders may also use leverage to buy more shares at a lower price to profit on a smaller relative price change.


Day trading entails more trades, resulting in higher commission expenses while investing entails fewer deals. A day trader may enter and exit a position many times during the day, while investors may maintain holdings for months or years. 

Day traders are more sensitive to broker commissions as a result of this, and a commission is tiny to an investor who intends to retain a stake for years. Day traders, on the other hand, often enter and exit positions, thus commissions may quickly pile up.

Stocks of Various Types

When it comes to stock selection, day traders and investors have distinct criteria. Day traders, as previously said, are more concerned with technical analysis than with fundamental research. Traders are unconcerned with a company's long-term prospects, management team, or other factors. Instead, they are entirely concerned with price movement. Day traders seek Stocks with velocity and volatility.

This opens up the possibility of profiting from major price movement. It also offers the liquidity required to enter and exit trades.

On the other hand, investors are looking for solid firms that they feel will develop in the next years. While volatility is advantageous to a day trader, it might be risky for an investor. Investors like to buy stocks from more reputable firms because they are safer.



Important Information For Long-Term Investors

A few things must be done to be a successful long-term investor. For example, you should bring your concerns to the attention of the company's management, and this may be accomplished by serving on the company's board of directors.

Alternatively, you might do so by becoming an activist investor and publicly voicing your grievances with the company's management.

The difficulty with all of this is that you must have a certain level of ownership in the organization. As previously mentioned, a person who owns less than 1% of the firm would most likely be disregarded by management.

As a result, you'll need some media ties to guarantee that your opinions are heard by management.

All of this is excessive!

In The Case Of A Day Trader

You will never need them as a day trader, and you won't have to spend a lot of time researching a firm.

For example, during earnings season, all you have to do is analyze the firm, purchase or sell, and wait for the release. In summary, we feel that day traders are better positioned than long-term value investors to maximize opportunities.

On the other hand, long-term value investing offers its own set of benefits in terms of the amount of labor necessary. Warren Buffet, for example, does not need to check his trading screen every day, and during his trade, he is at ease with declines.