Day Trading Vs Investing Discover the important distinctions between day trading and investing with CAPEX.

The financial world is more accessible than ever before, with numerous online platforms offering trading and investment across the various markets.

However, there is a lot to learn when it comes to finance and here at CAPEX we’ve found that there is often some confusion between trading and investing. In the following article, we’ll highlight the important distinctions between these terms and help you decide which approach is best for you.

Author:

Roy Connor

Last Updated on:

18/05/2023

Topic:

Trading

Thousands of financial instruments available

Here at CAPEX, We think diversity is key when trading – or investing for that matter – which is why we offer opportunities to trade and invest in more than 5000 different instruments. By offering a larger selection of assets, we provide the perfect environment for traders to focus on whichever markets they find themselves best suited to.

Whether you are looking to get involved with the crypto market, fancy your chances with forex pairs or prefer to stick to more traditional assets like individual stocks, bonds, exchange traded funds, fractional shares and commodities, CAPEX can support you through every step of your trading journey and give you the tools you need to trade CFDs in your chosen arena.

Get a feel for trading with a demo account

If you are looking to weigh up day trading vs investing, then why not get some risk-free experience to help you make your decision? At CAPEX, we offer all our customers a demo account – which allows you to trade CFDs using virtual funds.

A demo account is the perfect opportunity to find out exactly how day trading differs from traditional investing. You’ll also be able to start getting a feel for the markets and seeing how small price fluctuations occur throughout the day – which is one of the things that makes day trading so appealing.

Your CAPEX demo account will also allow you to get to grips with some of the powerful trading tools we can put at your disposal.

An important part of the decision making process when it comes to day trade and investing is understanding the taxation implications of each. Long term Investors tend to typically enjoy long term capital gains, while day traders are subject to more complex short term fluctuations for short periods.

What is day trading?

Trading and investment are often used synonymously, but they are actually two very different approaches to speculating on the financial markets. Fortunately, when weighing up day trading vs investing it’s fairly easy to understand the distinction.

Day trading is exactly that – opening and closing positions within a single day. At CAPEX, for example, you can enter a Contract for Difference (CFDs) and speculate on the price movement of a given asset. The great thing about day trading is that you can potentially profit from price movement in either direction.

An example of day trading

For example, if you think the price of Bitcoin will go down, you can issue a sell order. If the price then moves your way, a CFD effectively means you will then be paid the difference. Alternatively, if you think Bitcoin will increase in value, you can issue a buy order, in which case you’ll be in profit if the price goes up.

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What is investing?

Investing, on the other hand, usually involves a much longer transaction, in the hope that the value of an asset, say stocks or bonds, will increase over time. Whereas day traders are in and out quickly – sometimes just a few minutes – traditional investors often have their funds tied up for years at a time.

A crucial distinction between investing in stocks and trading CFDs is that with the latter, there’s no need to actually take ownership of the underlying asset – you are simply speculating on price movement. If you invest in stocks, however, you actually take ownership of a small portion of a company.

Investing often requires a dedicated account and specialist brokerage service – both of which can involve comparatively high fees.

Using an online trading platform

One of the reasons that trading has become so popular is that it is so accessible – especially if you compare trading vs long term investing in the stock market. Instead of opening a dedicated account and contacting a broker to arrange a transaction, day trading across multiple markets can be done via a single online platform.

At CAPEX, we cater to a wide variety of traders and investors, which is why we offer multiple trading platforms. Our WebTrader, for example, is highly intuitive and approachable even for those new to the markets.

Alternatively, we also offer the industry-renowned MetaTrader 5, which offers myriad options for charting and customisation, as well as every trading tool the seasoned professional could ask for.

Finally, we also offer a proprietary mobile app, for those who prioritise trading on the go.

Take control of every transaction

Another advantage of day trading is just how accessible it is. For example, you can trade numerous financial instruments, including cryptocurrency and forex, all in real-time via the CAPEX WebTrader. This means that day traders have far more control over their transactions than those investing in the stock or bond markets. ay traders can react in real-time, opening and closing positions as they see fit at one point, with the latest charts and data keeping them informed right up to the minute.

Day traders can take advantage of the potential for short term profit by engaging in margin trading with individual stocks. They can also benefit from having a trading plan in place to help maximize their returns within the same trading day. This involves carefully considering when it is best for buying and selling an individual stock without losing money.

Take advantage of low trading fees

When talking about day trading vs investing, the costs involved are obviously going to be an important factor. Ultimately, both approaches are about making profit and no one wants to see said profit diminished by high transaction costs.

For this reason, at CAPEX we offer commission-free trading. This means that we don’t charge you for opening and closing positions. Instead, the price you pay is reflected in the spread – that is, the difference between the buy price and the sell price of a given asset.

There are other fees to be aware of, however, if day traders leave positions open overnight, for example, then this will incur a swap fee. You will also need to pay a conversion fee if you fund your account with a different currency to the one you trade with. Details of all CAPEX fees can be found on our trading conditions page.

Advantages of day trading

When weighing up investing and trading, a lot will depend on your personal objectives and ability to build wealth. However, short term trading undoubtedly has certain advantages that are hard to come by in the world of traditional investing.

For those who want to make short term profits on the stock markets, short selling is an option to consider. With short selling, traders can potentially make money even when stock prices are falling, whereas this would be impossible for a long term investor who typically keeps their funds invested in stocks for at least a year.

Buying and selling stocks is a common way for people to invest in the stock market. By taking this approach, investors can benefit from the appreciation of their shares over time. However, a “long haul” investment approach requires more patience and a larger time commitment, as opposed to same day active traders where positions are opened and closed quickly, in a relatively short period.

Take advantage of market volatility

When looking at trading vs investing, one of the key things to consider is timeframes. As we’ve noted, investing often involves waiting years for relatively small returns. Day traders, however, look to take advantage of the small price fluctuations that occur in financial markets, minute to minute. This is also known as volatility.

Anyone who has ever looked at price charts before will know that asset prices move a lot, and given that day traders can profit from both increases and decreases in an asset’s price, this volatility offers a wealth of opportunity.

Use leverage to maximise returns

Another advantage of day trading vs investing is the use of leverage. Trading involves opening and closing positions in comparatively high volume – this means gains are often minimal. To boost their returns, day traders use leverage to increase their market exposure.

Whilst leverage can certainly maximise returns, it should be remembered that it effectively involves borrowing funds from a broker and just as it can boost profit, it can also amplify losses.

Implement cutting-edge strategies

The nature of day trading means that numerous strategies can be used to plan and execute transactions. You may already have heard of some approaches to trading, such as scalping or position trading – even day trading is technically a strategy – however, it’s also possible to start using mathematics to inform your trading approach, such as the Fibonacci strategy or the 200 EMA strategy.

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