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The Difference Between Short Term And Long Term Trading

Trading – Short Vs Long Term.

If you are a trader, just getting into trading, or are thinking about getting into trading, then you will know there is a lot to learn, and it all starts with knowing and finding the best trades to invest in. 

Of course, by now you know we are talking about trading in stocks- a lucrative field of investment, if you manage to do it right that is. 

Short term and long term trading both have their own pros and cons, but which you choose can depend on a series of varying factors, most of all you. You must decide the style of trading that best suits you, your personality and how you want to trade. 

There are many strategies too, just look at https://blog.thomaskralow.com/best-short-term-trading-strategies/  to see just how many strategies you could use. But strategy is not everything, it is important, but it comes after the step wherein you decide your style of trading. 

Before we highlight the differences, or even which is better, let’s talk about what exactly short term and long term trading actually are.

What Is Short Term Trading?

Short term trading, a popular and common form of trading. Now, we aren’t saying you can’t do both long term and short term trading, if you are a dedicated investor then of course you can. But, it is best to have a focus. 

Short term trades are instruments that you trade for a short period, usually less than a year, but no longer than three years. They are highly liquid, and typically involve fewer risks on the market. 

These can include treasury bills, money market funds, deposits such as company fixed deposits, or recurring deposits, and so on. 

Short term trades often make money faster as you will often see profits within a day if you invest in intraday trading. You also face a shorter-term risk, and so if you find something was the wrong decision, you can free up your capital invested and reinvest. 

However, you will also find yourself stressed, as the share markets are hardly predictable, and it can be something of a challenge to figure out the future status of any capital. Not only that but it takes time and attention, meaning you are always checking the market, which can be time-consuming.

What Is Long Term Trading?

On the other hand we have long term trades. These are investments which will offer higher returns after a few years, this often falls under a time of five or more years. Of course, these see more market risks, but they do provide higher returns. 

The nature of this type of investment will allow you to invest in aggressive instruments. 

Stocks fall under this category, they also are the best way to get high returns to the market. Equity mutual funds are another form of long term trading as well. 

Long term trades give you higher returns but more risk. On the plus side of long term trades is less stress, you do not need to constantly follow the market as you trade, and you can ignore current stats and focus on the future, this also means you save time too. 

This type of trading also gives you compounding benefits, you can invest dividends back into the market to earn even more profit, and even better- it saves on taxes, as most short term traders will have to pay around 20-30% tax, whereas long term trades look at only 5-15% tax.

Which Is Better?

Honestly, there is no real winner between short term or long term investments, both of these types of trading have their own pros and cons. It really depends on your own preference. 

Short term investments allow you to achieve financial goals in a short period of time, and they have a lower risk to them. Yet if you prefer risk and want higher returns than long term trades are better. 

To preserve capital and have moderate returns short term investments are better, however, long term investments are better for capital appreciation. And, let’s not forget about tax too. Tax on long term trades is lower than with short term trades. 

Online trading makes share trades easier, however, there is so much going on that there is a lot to learn. 

There are plenty of differences between long and short term trades, the main being the timespan that you see returns, as well as the instruments of investment as well as tax, risk, and time involved. 

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