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Trading vs. Investing: Which Is Right for Your Financial Plan?

May 18, 2021 by Daniels Trading| Tips & Strategies

It is a common misconception that traders and investors are the same. Although it is true that both may pursue profits by buying and selling futures contracts, the manner in which they pursue this goal varies greatly. Read on to learn more about the trading versus investing dichotomy.

Time Frame and Expectations Are Key

Perhaps the single largest difference between traders and investors is how each views time. Essentially, it boils down to trade duration and investment horizon.

Trade Duration

Trade duration is the length of time during which a position is open in the market. Active traders measure the duration of their open positions by seconds (for those pursuing scalping strategies), minutes, hours, days, and weeks. In doing so, traders aim to execute many positive expectation trades and take an active, high-volume approach to the markets.

We’ve been assisting our clients in making sound trading decisions for over 25  years.  Trust a Daniels Trading broker to help you reach your trading objectives in  any market.

Investment Horizon

According to Investopedia, an investment horizon is “the total length of time that an investor expects to hold a security or portfolio.” Investors typically measure a position’s horizon in terms of months, years, and decades. Subsequently, investors are often labeled “passive” because they are far less active in the market than traders.

Goals of Trading vs. Investing

The duration versus horizon tradeoff is the key element in the trading versus investing argument. In fact, it is the primary tenet driving the objectives of each discipline:

Trading

The goal of trading is to realize a long-run profit by executing many positive-expectation, short-term trades. This is accomplished by identifying opportunities on compressed time frames and selecting trades with favorable risk versus reward payoffs. With these goals in mind, many traders rely on technical analysis as their primary decision-making mechanism. By studying intraday, daily, and weekly price action, traders can profit from short-term volatility while limiting exposure to broader systematic risk.

Investing

Contrary to trading, the primary objective of investing is to open a small number of highly profitable positions in the intermediate to long term. To accomplish this goal, investors evaluate market fundamentals in an attempt to catch macro trends. In identifying an asset’s intrinsic value with respect to fundamentals such as social behavior, geopolitics, or economic cycle, investors can take longer-term, directional positions in the market.

Trading vs. Investing: Which Is Right for You?

For many people participating in or considering entering the futures markets, the trading versus investing discussion can cause confusion and angst. Should I trade? Should I invest? Can I do both? If this sounds like you, then perhaps a quick look at the pros and cons will help:

Discipline Pros Cons
Trading Involves daily activity, limits systematic risk,
reduces margin requirements, requires
minimal capital outlay
Tests trader discipline, can be mentally and physically
exhausting, involves increased transaction costs,
requires extensive time allocation
Investing Requires minimal time, reduces impact of
short-term volatility, requires lower transaction costs
Involves increased capital requirements, entails greater
exposure to systematic risk, tests patience

At its core, the decision to become a trader or investor is a largely personal one. Here are several questions to ask yourself when pondering the trading versus investing quandary. If nothing else, they will shed some light on which course of action may be suitable for your unique situation:

  • Trading
    • What is my experience level and expertise?
    • What are my capital and time resources?
    • Am I technologically proficient? Can I operate a trading platform?
    • Do I have a viable strategy for short-term trading?
  • Investing
    • What is my patience threshold?
    • Do I have the discipline to hold the line when faced with adversity?
    • How much capital am I willing to dedicate to an investment?
    • Can I afford to forego small profits and hold positions until they reach maturity?

Want to Learn More About Trading and Investing?

If you’re interested in hearing more about trading versus investing, a Daniels Trading market professional can help. With decades of financial industry experience, our team has seen it all on the trading and investing fronts. Don’t wait―begin building your powerful financial plan via a free consultation with a Daniels Trading broker.

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Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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