People always want to find the best type of trade to invest in. This particularly holds true for short-term and long-term trading. This decision, however, varies from person to person. Ideally, the trader must decide on a trading type that best suits his/her personality.
Let’s us take a closer look at short and long-term trading to gain some insight.
When the duration between buying and selling ranges from a few days to a few weeks, it is considered as short-term trading.
Pros of short-term trading
Faster means of making money: The benefits of a trade can be realized in a short period through this method. You can earn profits within a day by investing in intraday trading.
Short-term risk: If you discover that a wrong decision was taken on a trade, you can free up the capital invested and reinvest it in fresh stocks. This is because capital is at risk for a shorter period.
Cons of short-term trading
Volatile market: There are chances that you may lose a significant amount of money while indulging in short-term trading due to the volatilities in the share markets.
Stress: The unpredictability of the share markets makes it difficult to figure out the future status of your capital. This, in turn, increases your stress levels.
Time-consuming: Short-term trading demands a lot of attention. You need to continuously check the market in order to make buying and selling decisions.
When the duration between buying and selling ranges within a few months to a few years, it is referred to as long-term trading.
Pros of long-term trading
Less stressful: There is no need to constantly follow the market when trading long-term. You can ignore the current market conditions and focus on future market conditions. Put simply, you don’t need to babysit your stock.
Time-saving: You can dedicate the time saved from constantly following the market on other productive activities. You can study other stocks and do thorough research before making buying or selling decisions.
Compounding: Long-term trading helps you take advantage of the power of compounding. You will be able to invest the dividends back in the market to earn more profit.
Saves taxes: Long-term trading also helps you save taxes. Most short-term traders need to pay around 20%-30% whereas long-term trading activities are charged f only at 5%-15%.
Cons of long-term trading
Chance of missing out: Long-term trading requires you to invest your capital for a long-term, and you might miss out on a volatility in the market to make money.
In-depth knowledge: Long-term trading requires you to have in-depth knowledge of the sector or stock you are investing in. You just can’t make decisions based on certain news or hearsay.
Homework/Research: You need to do your homework if you are going to trade long-term as you just can’t rely on graphs or charts to make a trading decision.
Patience: Long-term trading requires a lot of patience and the failure to meet it will create problems for the trader in the long run.
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