Before deciding whether you should trade or invest to increase equity, it is necessary to understand the differences between the two money management styles.

Trading is primarily concerned with making profits from short term fluctuations in the market to generate the highest returns possible. In general, these returns are made by buying at a low price and then selling at a higher one. The logic behind trading is to profit from several small transactions over short periods of time.

The theory behind investing, on the other hand, is to employ a longer term strategy that stretches over years, if not decades. An investor will seek to ride out any short term fluctuations in the market as opposed to profit from them like a trader would. Instead, an initial investment is usually made with a persistent trend in mind – for instance a global need for drinking water – which will ultimately result in a price rise of an asset, regardless of shorter term trends that can affect indices. Additionally, reinvesting any profits from dividends or interest can compound returns to yield an even larger investment return.

So to answer the question, should I be trading or investing, you must really think about your own ability to trade or to invest. Whilst both methods are active investment strategies (as opposed to passive investing), it is perhaps fair to say that trading is the more intense of the two, requiring constant monitoring of stock prices and indices to take advantage of short term price spikes and troughs. Whilst any long term investment will still need to be monitored, the longer term nature of this active strategy, does not require the same level of immediate action as trading can do.

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