Trading & Investing: What's The Difference?

Trading & Investing: What's The Difference?

The Difference Between Trading and Investing


I’m sure we’ve heard stories like this before: A friend of a friend who made a tidy sum of money from trading after following advice from an internet forum, and is now about to spend his pretty penny on a shiny new watch or car. Hearing such stories would often cause many others, or even yourself to want to jump in, in the hopes of such a ‘game winning trade’ to change their and your lives.

You probably would’ve heard more stories of success than failures. After all, who’s going to go around telling their friends the story of how they foolishly lost their life savings betting on something that they overheard from a mate over a pint of beer.

In Singapore, the rise of trading amongst younger investors using online trading platforms has people urging for more healthy trading. But what exactly is healthy trading supposed to look like? By and large, trading isn’t exactly the healthiest thing for your emotional wellbeing, and your bank balance. Let’s look at some of the data below so you’ll know what we mean.



Research on day-traders in Taiwan over a 15-year period from 1992 to 2006 showed that even the most experienced day-traders had lost money. Overall, these traders performed worse than the market by an average of -3.8% annually. A good number of these losses were chalked up from their aggressive order placement. Not unlike a gambler who refuses to leave even after he’s lost his base. Traders who lost consistently still continued to trade, showing an inability to learn from their mistakes and repeating the same cycle of loss constantly.

A study on the Future markets in Brazil (the third largest in the world) showed that a whopping 97% of traders lost money. 1.1% generated profits above the minimum wage and only 0.5% earned more than the starting salary of a bank teller.

Another study by the US Securities and Exchange Commission found that retail Forex traders do very poorly. A good 70% of such traders lose money every quarter and they would lose their entire investment in the span of a year. You don’t need me to tell you that that’s an utterly poor outcome.

An analysis of trade data from eToro, (an online brokerage platform) found that a staggering 80% of investors lost money over a 12-month period, with a median loss of -36%



It goes to show that the odds are really stacked against the day trader. Though there may be people who managed to take back decent to great returns. Such stories are just a mere drop in the bucket. The stats do not lie.

Nobel Laureate, Robert Merton, commented on the difficulty of market timing and trading; “Suppose I could verify that I’m a .700 baseball average hitter in calling the market turns. That’s pretty good; you’d hire me right away. But to be a good market timer, you’ve got to do it twice. What if the chances of me getting it right were independent each time? They’re not, but if they were, that’s 0.7 times 0.7. That’s less than 50-50. So, market timing is horribly difficult to do.” 

If you think that professionals are any better at trading, you might want to hold that thought first. While they may have a wealth of information at their disposal along with their experience in the market. A majority of these market forecasters can barely come close to 70% accuracy on trades.



Rather than trading, perhaps you should turn your focus towards investing instead. There was an article recently, about a humble janitor who left behind an estate of $8 million through prudent investing and the power of compounding. Gathering high-quality stocks over the years, he allowed his returns to compound and he managed to grow his wealth substantially. The key detail in this: He did not trade.

I’m not here to dissuade you from trading, nor can I force you to do things you may or may not want to with your money. People are always free to trade or invest as little or much as they so please. But our role here, is to lay down the facts and numbers, showing you where the evidence points toward. This way, if you were to start something, you would know what to expect, rather than simply going in blind. If you ever need a second opinion on whether you’re doing the right things, or if your next step is on the right track, do not hesitate to contact Chase @ 9823 4333