When it comes to investing in stock markets in India, there are numerous paths one can take. Long term investing in stocks is one of the best ways to invest in creating wealth. Despite of that some traders choose intraday trading approach in order to reduce overnight risk. Before you take a decision, you need to first understand the two concepts of investments.
Intraday traders do not hold any position overnight, i.e., they buy and sell within the same day. This trading strategy takes advantage of short-term market fluctuations in an asset’s price, and all positions are closed within the same trading day. This strategy can be challenging for beginners as they may not have strong technical skills.
Long term investment.
Long term investment means holding on to your investment for months, at times even for years. This is a buy-and-hold strategy rather than quick selling. You need to do thorough research about the financial performance of a company before making an investment decision.
The decision to become a long-term investor or an intraday trader depends on the skills, investment goals, personality traits, etc., of the individual.
Difference between intraday trading and long term investing.
1. Long term investment in stocks does not involve emotional investing decisions.
Long term investing in stocks completely does away with emotions in investing. This is because when you have a clear long term investment mindset, you will not be excited to sell stocks when you see a jump of 10% or even panic and exit when markets are crashing due to any major events (Domestic/International) in market like Global Event , rising oil prices, RBI policy for example. By remaining invested in long term you are simply giving enough time to the business to grow and realize its actual potential because no business can grow overnight.
Intraday traders try to time the market and catch the highs and lows. They require emotional control while trading since they need to get out from trade on same day.
2. Compounding works in your favour with long term investing in stocks.
Long term investing in stocks enables you to take advantage of compounding as well the ability to reinvest your dividends over time which will enable you to generate even bigger profits. Intraday traders won’t get this benefit.
Intraday traders generally have low brokerage as compared to long term investment.
4. Exposure limit.
Day traders get more margin limit for the trade as they will close the trade on same day. Many broking firms offers 8-10 times exposure limit for intraday trading. On the other hand, the long-term investor’s exposure will be limited to the investment amount
5. Long term investing in stocks is stress-free.
Intraday traders will always have stress as they won’t to sell the stock on same day. Intraday traders are constantly hooked to their computers or mobile phones so that they don’t miss out on opportunities. This highly impacts their other activities and day to day work causing high levels of stress. On the contrary, long term investing in stocks means one does not have to wake up at the opening bell every day to check whether your portfolio is going up or down. Investing in good quality businesses is a definite way to keep your portfolio volatility low, which in-turn makes investing a stress-free experience.
6.Long term investing in stocks enables you to save more on taxes and commissions.
Active trading involves frequent buying and selling of stocks which means not just higher brokerage costs, but also higher taxes as short term capital gains are chargeable at a higher rate than long term capital gains applicable on selling stocks after holding them for a period of 1 year or more.
Given the huge stock market volatility, the odds of making losses over profits are very high in intraday trading. That’s why long-term investing is considered as a hassle-free and reliable way to create wealth from the stock market.
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