How To Guide For: Understanding The Difference Between Investing And Trading

The definition of investing is the act of committing money or capital to a business, project, real estate, or any endeavor with the expectation of obtaining an additional income or profit. But according to Warren Buffett (Berkshire Hathaway 2011 Letter to Shareholders- page 17) -- investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. There are two kinds of investment: fixed income and variable income. Fixed income investment refers to an investment that bring in a set amount of interest income on a regular basis, such as bonds or fixed deposits. Variable income investment refers to business or property ownership. A trade in the financial markets, refers to the buying and selling of securities, such as the purchase of stock on the floor of the New York Stock Exchange (NYSE). These are just some ways to differentiate between investing and trading. To get more in depth information on the difference between investing and trading -- click the pictures below to read the articles.