Both trading and investing are excellent ways which you can potentially gain an additional source of income. They are, however, not the same, and it is important to clearly define your financial goals, as well as the risks you are willing to take. In this article, we’ll discuss the main differences between online forex trading and forex investing.
Difference in mechanism
At first glance, people seem to freely interchange both terms to mean the same thing. After all, don’t you need capital to invest in a currency so that you can trade it once it becomes more valuable? You are not actually “investing in a currency”. Strictly speaking, you can’t invest in any currency at all — not even cryptocurrency.
Currency is traded like another commodity. You buy at a lower price, and resell at a higher price. Resale is not investing. Investing in an asset is when you put that asset to work before you resell again. Think of a type of asset in which you can invest, like properties.
You can rent out your property to obtain additional income to the profit that you would eventually gain from reselling your property when the price is much higher. You can invest in debt with a foreign currency. If you lend your money to a financial manager in a mutual fund, and earn compounded interest in addition to the principal.
Online forex trading, in strict terms, is not investing. You will need to be an active trader in order to successfully make any profit, and you cannot hope to earn additional value with an interest rate.
Difference in risk and profit
The risk profile and profit potential differ greatly between trading and investing. With trading, the profit that you earn is nearly the reflection of the value you exchanged by timing the market. We say ‘nearly’ because there are small commissions to pay for using certain trading platforms, and that is perfectly normal.
Any loss incurred from trading is entirely the responsibility of the trader, and the amount of loss depends on the skill level of the trader. You can think of the huge profits as the reward for taking the risk and total responsibility of timing the market correctly.
Otherwise, if you invest in a foreign mutual fund, the asset manager would be held most accountable to timing the market right in order to help you gain any profit. Of course, you often earn a lower profit since you do not need to do anything else other than to oversee the performance of the manager — and to pull back funding when you see fit.
About FBS
FBS is an online forex trading platform, which means anything that you deposit into your trading account does not go into the hands of a third party. You are entirely in control and responsible for any profits gained or lost as part of a true trading experience. All we can do to help you succeed is to offer some guidance and five different accounts to choose from — this is how you could mitigate unnecessary risks in trading.
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