All of us hope to find the best type of trade to invest in the market. It exceptionally happened to be the truth of short-term and long-term trading. However, this resolution differs from person to person. Preferably, the traders must choose a trading type that suits them best to their temperament.
This article briefly analyzes the short and long-term trading traits for you to gain some insight into trading.
Short term trading
When the length of time between buying and selling ranges from a few days to a few weeks, it is called short-term trading.
Advantages of short term trading
- Quicker means of making money
This method helps you reap the benefits of a trade quickly. Intraday trading enables you to earn profits within a day whenever you invest.
- Short-term risks
You can free up the capital and reinvest it in fresh stocks if you find that you made a wrong decision on a trade. It is possible as the capital investment is at risk for a short time.
Disadvantages of short term trading
- The market volatility
The chances of losing a remarkable amount of money are there while involved in short-term trading because of the share market volatilities.
Indulging in the share markets is most likely to increase your stress levels, as the unpredictable nature of the share markets often leaves you in a difficult position to figure out the future status of your capital investment.
You have to keep an eye on the market almost the entire time to come up with the needed decision for that time. Short-term trading requires a lot of attention because of the limited time in trading.
Long term trading
When the length of time between buying and selling ranges from no more than a few months to a few years, it is known as long-term trading.
Advantages of long term trading
- Less stressful
Compared to short-term trading, long-term trading comforts you on a whole new level. It eases you to the extreme of ignoring the current market conditions and enables you to focus on the future market conditions. There won’t be a need for you to spoon-feed your stocks.
By opting for a long-term trade, you can devote your valuable time to other productive tasks instead of constantly following the market. Through this, you will have time to study stocks and conduct thorough research before placing a buy or sell order.
Long-term trading provides you to take dominance of the power of compounding. Long-term trading allows you to reinvest the earned dividends back into the market for you to yield more profits.
- Saves taxes
Another added advantage of the long-term trades is that it helps you save taxes. Almost all short-term traders have to pay around 20% – 30%, while on the contrary, the tax percentage for the long-term trade activities costs around only 5% to 15%.
Disadvantages of long term trading
- Chance of missing out
There is an excellent probability that you will likely miss out on volatility in the market to make money, as the long-term trading needs your capital investment to get invested for the long term.
- Profound knowledge
Long-term trading demands you to have a vast knowledge of the stocks or sectors you are about to invest in the market. It would be best if you never decided to invest based on certain news or rumours.
- Research or Homework
Any business requires you to have some fundamental knowledge to proceed further. It is essential to research if you ever plan to trade long term as it is not advisable to rely on charts or graphs to make a trading decision.
Patience is a virtue for long-term trading as it requires you to have a lot of patience and tolerance towards any failures for you to flourish in the long run.
Both short-term and long-term trading’s are feasible forms when it comes to securities trading. As mentioned above, differences make these two methods unique and worth doing, and it is visible as many traders choose to do both as per their comfort. It is crucial to learn which way suits your needs and also it is possible to select both.