If you’re new to investing, you may be wondering what the difference is between trading vs. investing.
In this guide, we answer that question and show you that you don’t need to actively follow the markets every day to successfully invest in bitcoin.
Trading vs. Investing
Trading and investing are often used interchangeably in the world of finance. However, the two are very different.
Trading involves the buying and selling of an asset with the aim of making a short-term profit from price volatility.
In other words, you buy an asset when the price is low and sell it when the price is high. The difference becomes your profit.
Trading is a short-term endeavor, measured in minutes, hours, or days, and involves timing the market to take advantage of the price movement of financial assets. For traders, the focus is on the short-term profit, and therefore most traders will participate in highly liquid financial assets, such as stocks, forex, and bitcoin.
Conversely, investing is buying an asset and holding it for the medium to long term with the aim to generate a return on investment (ROI) over time. Investors take time to research their prospective investments to make a decision on whether they believe that the asset will appreciate or not. The investment horizon for investors is months to years.
The main difference between trading and investing is that the latter is focused on long-term capital appreciation over short-term gains.
What is Bitcoin Trading?
Trading in bitcoin involves buying and selling the digital currency to make short-term profits that (hopefully) add up over time. Bitcoin’s volatility has made it one of the most attractive digital assets for active traders.
With intraday volatility of up to 5 percent, experienced traders can make substantial trading profits, especially when using leverage. To achieve this, traders use tools and charts to analyze bitcoin’s price movements and market sentiments to buy and sell the digital currency, often multiple times a day.
However, bitcoin trading is very risky as the market can move very quickly in the opposite direction you want it to. While traders manage their risk using stop-loss orders and by sticking to price targets, it remains difficult to generate regular trading profits given how fast the market moves.
What is Bitcoin Investing?
Bitcoin investing involves buying and holding the digital currency for a long period of time, with the intention of selling once it has appreciated substantially in value.
Investing in bitcoin allows you to weather the bear markets and offset your losses against bitcoin’s long-term growth.
Some investors prefer to purchase a large amount of bitcoin and then “HODL” it (as the popular meme says). Others prefer to “buy the dip” (i.e., buying some bitcoin every time the price drops).
Then, there are individuals who save regularly in bitcoin using a bitcoin savings plan. Using an app like Relai, individuals can automatically invest a fixed amount of money into bitcoin in a completely hands-off manner.
Whichever investment approach you choose, the focus is on long-term value appreciation.
Should You Trade Or Invest in Bitcoin
While trading bitcoin may offer quick returns, that’s not always the case.
The reality is, unless you are a seasoned trader, you will likely end up losing money trading. In fact, CFD and forex trading accounts lose money because it’s extremely difficult to predict short-term price movements in bitcoin or any other asset.
Arguably the better option is to invest regularly in the digital currency by dollar-cost averaging bitcoin. That way, you can watch your bitcoin portfolio grow steadily over time.
To start investing in bitcoin, download the Relai app from the Google Play Store or Apple App Store today!
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