Along with investing, trading is a method of
attempting to profit in the financial markets.
While the goal of investing is to gradually build fortune over an extended period of time through the buying and holding of a portfolio of stocks, bonds and other investment instruments, trading involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing.
Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. However, the profit may also be made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets.
The style of a trader refers to the holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of the following categories:
- Position Trader – positions are held from months to years
- Swing Trader – positions are held from days to weeks
- Day Trader – positions are held throughout the day only with no overnight positions
- Scalp Trader – positions are held for seconds to minutes with no overnight positions