With traditional savings methods like term deposit accounts yielding lower and lower returns, more Aussies are looking at alternative ways to grow their wealth. Trading in Australia has become increasingly popular in recent years as tools like robo-advisors make it easy for everyday investors to enter the stock market. But how does trading work, and is it right for you?
Trading vs investing: What’s the difference?
You’ll often see the terms ‘trading’ and ‘investing’ used interchangeably, but there is a difference.
Investing is focused on buying shares (or other assets) with the goal of gaining steady returns over time. Trading, on the other hand, is about buying and selling shares quickly as a way to profit from rapid changes in share prices.
While an investor might expect to see modest but consistent returns over a five, 10 or 20-year period, a trader hopes to ‘beat the market’ with significant gains over the course of days, weeks or months.
There are four common types of trading strategies based on how often the trader buys or sells shares:
- Position trading: Positions are held from months to years
- Swing trading: Positions are held from days to weeks
- Day trading: Positions are held throughout the day only with no overnight positions
- Scalp trading: Positions are held for seconds to minutes with no overnight positions
The more often trades are made, the bigger the potential for both fast gains and losses.
Is trading shares or investing right for you?
This depends on several factors:
- Your financial goals: investing is suited to long-term growth, while trading is about short-term gains
- Your appetite for risk: while you might make higher returns faster by trading, you can also lose money quickly
- How much time you’re willing to dedicate: trading means spending more time watching your portfolio and price movements
- Your level of experience: even if you’re not trading for a living, it’s good to have a solid understanding of the stock market if you plan to buy and sell shares yourself
How many trading days are there in a year?
A trading day is the time span that an exchange is open, i.e. the time during which you can trade shares. Trading days are usually Monday to Friday. When a trading day ends, all trade movements stop until the next trading day begins. The number of trading days depends on the exchange and the year, but averages around 253 days a year.
How to start trading online
Before the advent of trading technologies, the vast majority of traders used traditional brokers. Today, however, many people self-manage their investments by buying and selling shares online. If you’re thinking about buying and selling shares, you have a couple of trading options:
- Use an online trading platform
These platforms enable you to create an account and buy and sell shares yourself. Keep in mind some platforms only allow trading on the ASX, while others include multiple exchanges. Online trading platforms give you plenty of control over your investments, but you’ll need to understand the market and regularly monitor movements. Fees and features also vary depending on the platform, so it’s worthwhile doing some research before deciding on a platform if this is the route you want to go down.
- Use a robo-advisor
If you want a ‘set-it-and-forget-it’ strategy for share trading online, you can use a robo-advisor. Robo-advisors can utilise AI and machine learning to detect patterns in trading data and place trades to maintain an optimal investment portfolio for you – so you don’t have to understand the inner workings of the stock market to gain returns. With a robo-advisor, you can also opt for short-term trading or long-term investing depending on your financial goals. Whether you’re interested in trading or investing, robo-advisors like Unhedged use AI-driven trading algorithms to maximise the returns for you. And if you’re just getting started, using a robo-advisor is one of the lowest-risk ways to enter the stock market.
Information in this article was prepared by Unhedged and does not constitute as financial advice. This article aims to merely be a way to commence your research and demonstrates some of the options in the financial space.