Fulbright Securities Limited is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Crypto assets are highly volatile and unregulated. No consumer protection. Tax on profits may apply

The terms ‘investing’ and ‘trading’ are often used interchangeably. However, there are key differences between the two financial strategies. The goal of investing is generally to build wealth over the medium to long term. By contrast, the goal of trading is to generate profits in the short-term. In this guide, we take a look at the basics of investing and trading and explain how the two financial strategies differ.

What is investing? 

Investing is a longer-term ‘buy-and-hold’ strategy. Investors will often hold assets for years, or even decades, with the aim of generating substantial profits from rising asset prices and any income generated from the assets over time.

An investor’s exact time horizon (the length of time that the investor expects to invest for) will depend on their financial objectives. For example, someone who is investing for retirement may have a time horizon of 20 years or longer. Someone who is investing to build up a house deposit, on the other hand, may have a time horizon of five years.

A fundamental principle of investing is that the higher the potential return of an investment, the higher the risk of that investment. This is known as the ‘risk-return tradeoff.’ Risk refers to the chance that an investment’s actual returns will differ from its expected returns.

The longer an investor’s time horizon, the more they can focus on higher-growth, higher risk investments. This is because they have more time to ride out market volatility. An investor with a shorter time horizon will need to be more conservative with their investment choices otherwise they run the risk of not achieving their financial goals.

Most investors are comfortable with the fact that financial markets tend to rise and fall in the short term. As a result, they will often ride out periods of underperformance with the expectation that asset prices will eventually rebound and any short-term losses will be recovered.

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