The difference between investing and trading is mainly time and purpose. Investors buy assets to hold for years, aiming to benefit from business growth, dividends and compounding. Traders buy and sell over days or weeks, aiming to profit from short-term price moves. Trading usually costs more, needs more time and carries more risk, especially when it uses borrowed money or leveraged products.
Investing and trading can both lose money. With leveraged trading, MoneySense warns, losses can be unlimited depending on the positions taken. This guide explains the difference. It does not recommend either approach or any product.
Investing vs Trading at a Glance
| Investing | Trading | |
|---|---|---|
| Time frame | Years to decades | Minutes to weeks |
| Where returns come from | Business growth, dividends, interest, compounding | Short-term price movements |
| How decisions are made | Goals, asset allocation, company or fund fundamentals | Price patterns, news flow, momentum |
| How often you transact | A few times a year, or a fixed monthly amount | Often, sometimes daily |
| Costs | Low, as trades are infrequent | High: commission, exchange fees and spreads on every trade |
| Common tools | Shares, ETFs, unit trusts, bonds, robo-advisers | Shares, margin, options, CFDs, leveraged products |
| Main risk | Long periods of poor returns; a fall just before you need the money | Fast, large losses; costs outrunning gains |
How Investing Works
MoneySense describes investing as growing your money to reach financial goals, through products you understand that suit your risk profile. Its core tools are diversification, asset allocation and dollar-cost averaging, investing a fixed sum at regular intervals regardless of the market.
Time is the main ally. MoneySense notes that a longer investment horizon gives you more time to ride out short-term fluctuations and grow through compounding. Our compound interest calculator shows how this adds up.
How Trading Works
Traders try to profit from price moves over short periods. MoneySense defines market timing as buying or selling when you think the market is favourable, and notes that trying to buy low and sell high is challenging, with most investors failing to sustain significant returns that way.
Trading often involves:
- Margin: borrowing from your broker to trade larger amounts.
- Derivatives such as options and contracts for difference (CFDs).
- Leveraged and inverse products, which MoneySense classes among complex Specified Investment Products.
Leverage cuts both ways. A 10% move against a position bought with half borrowed money is a 20% loss of your own capital, before costs.
Worked Example: What Frequent Trading Costs
Illustration with our own numbers. Compare two people with S$10,000 in SGX shares. Assume a $2 commission per trade, SGX trading and clearing fees of 0.04% (brokers list 0.0075% and 0.0325%), and GST at 9% on fees. Spreads are ignored, so real costs would be higher.
The investor buys $500 a month, 12 trades a year:
- Each trade: $2 commission + $0.20 SGX fees = $2.20, plus GST = about $2.40.
- A year: about $29.
The trader makes 20 round trips a month, each buying and then selling $5,000:
- Each side: $2 commission + $2 SGX fees = $4, plus GST = $4.36.
- Each round trip: $8.72.
- A year, 240 round trips: about $2,090.
The trader must earn about 21% a year on $10,000 just to cover costs. The investor’s costs are about 0.5% of the $6,000 put in. Bid-ask spreads, which MoneySense notes can be 0.5% or more on less liquid ETFs, would widen the gap.
The short version: investing relies on time and diversification; trading relies on frequent, correct short-term calls. Every extra trade is a cost that has to be earned back before you make anything.
What Behavioural Research Says
MoneySense’s guide to behavioural finance lists overconfidence as a common trap: crediting skill for gains in a rising market and blaming bad luck for losses. It warns against “confusing activity with progress”, noting that frequent trading often means paying more in costs and making more emotional decisions.
It also notes that checking a portfolio often exposes you to short-term swings that trigger loss aversion. Trading requires constant checking by design.
Tax: Investing vs Trading in Singapore
IRAS says profits or losses from buying and selling shares and other financial instruments are generally viewed as personal investments and are not taxed. For property, IRAS lists factors it uses to decide whether someone is trading, including how often they buy and sell, why, their means to hold long term and how long they hold. If your share dealing is frequent and organised enough to look like a business, ask IRAS how the rules apply to your case rather than assuming.
US and other foreign shares can have their own taxes, such as US withholding on dividends.
Settlement and Day Trading
SGX rules set settlement for ordinary trades at T+2, two market days after the trade. Some brokers let you buy and sell before settlement. How they handle it, and whether you need cash or margin to do so, depends on the broker and account. Our guide on how to buy stocks in Singapore covers trading hours and fees.
Choosing Your Approach
Questions worth asking yourself:
- What is the money for? Retirement or a child’s education decades away suits a long-term approach.
- How much time can I give it? Trading is close to a part-time job.
- Could I afford to lose this money entirely? If not, leverage is off the table.
- Am I comparing with a realistic benchmark? An index fund’s return, after its low costs, is the bar any trading strategy has to clear.
If you decide to trade, MoneySense’s advice to deal only with MAS-regulated firms applies. Check your broker in the MAS Financial Institutions Directory.
What To Do Next
- Write down your goal and time frame for each pot of money.
- Add up a year of your actual trading costs from your broker’s statements.
- Compare long-term options in our hub guide to starting out and ETF investing guide.
- See what your savings could support in our financial freedom calculator.
