There are two ways to make money on the stock exchange: investing and trading. there is a huge difference between the actions of an investor and a trader. In this article, we will compare two forms – investment banking vs sales and trading.
What is investment banking?
Today, the formation of a modern model of the investment process continues in the world. This process is characterized by changes in the investment regulation system and financial innovations.
Investing is an investment of funds, as a rule, for a long period to obtain dividend income and possible profit from exchange rate differences. The purpose of investing is to preserve the money invested and receive a dividend yield. An additional bonus is the likelihood of an increase in market value, which will increase the investor’s income if his assets are sold. Nevertheless, the rate of the acquired asset may not only grow but also decline – in this case, when the asset is sold, the investor will suffer losses. Investing does not use leverage and the investor buys assets only with his own money.
Investment banking includes the following functions:
- organization of initial public offering of companies (underwriting);
- trading in securities on the secondary market and related depository, advisory services;
- client securities portfolio management services. This area includes activities for the formation and management of banks’ own securities portfolios;
- mergers and acquisitions. In such agreements, banks participate as consultants and intermediaries who not only help to conclude and execute agreements but also are actively looking for sellers and buyers of enterprises, individual parts of enterprises, and other assets;
- organization of project financing.
Issuing stock or bonds in trading strategy
Trading implies the use of any, even the shortest-term movements of the stock market, which means that it requires a constant presence in the market and active trading with a large number of transactions.
A trader can benefit from both rising and falling markets. The strategy in emerging markets is based on the well-known principle of “buy cheaper and sell more expensive”. In a falling market, traders use margin trading: first, they sell assets that they do not yet own at their current value and then buy them back at a reduced price. Almost any financial instrument can act as a trader’s asset. The trader’s time is limited, so he does not care about the quality of financial instruments – he analyzes only their current position in the market.
Basic trader’s tools include:
- The order book
- Technical indicators
Trader or Investor: what would you choose?
In the process of investing in securities, an investor can adhere to an active speculative or passive strategy. Passive investing implies long-term ownership of securities to obtain income from ownership – dividends, coupons, and speculative – a bet on the growth in the value of securities in the short term, usually up to a year. Those who practice a speculative approach are sometimes called traders, supporters of passive investing are called investors.
Traders and Investors are two groups of stock market participants that differ in their preferred investment horizon. That is the period after which the planned profit will be received. Traders focus on short to medium-term market movements ranging from a few minutes to a couple of weeks. Investors, on the other hand, completely ignore such fluctuations and pay attention only to global changes that take months or even years.