Short-Term Trading vs Long-Term Trading
Every equity investor has a different investment goal and time horizon. However, there isn’t an investor, especially the amateur ones, who do not understand between short-term trading vs long-term trading.
Let’s understand the difference between them.
This refers to buying and selling stocks or investing in a financial instrument with an intention to hold them for a few days up to one year. Some people even engage in intraday trading which means that they try to draw profits from price movements on the same day of the trading.
Examples of short-term trading investment instruments are:
Money Market Funds
Ultra Short Term Debt Funds
Capital or Convertible Notes
Short-term trading allows you to earn profits within a brief period as the price movements are relatively small.
It also reduces the investment risk as you have an option to sell the stocks and recover your capital in intraday trading the moment the market goes down.
Most short-term instruments are also highly liquid and you can get returns as soon as they mature.
You have to continuously monitor your stocks every day to make buying and selling decisions.
The interest rate and returns are usually low due to the short-term investment horizon.
You may miss out on the benefit of compounding returns if you sell early.
You will have to pay 15% of the profit as tax if you make any profit on selling the stocks within one year as it is considered a short-term gain. If your tax slab is 10%, 20%, or 30%, you have to pay a special tax of 15% irrespective of the tax slab.
This refers to buying and selling of stocks or investing in a financial instrument with an intention to hold them for more than a year. The primary aim of long-term trading is to create wealth, a large corpus, and a stable portfolio.
Examples of long-term trading investment instruments are:
Equity Mutual Funds
You can track your stocks on a weekly or fortnightly basis as you don’t have to worry about temporary volatility.
Long-term trading helps you to absorb market shocks better than short-term trading.
You can build a larger corpus and get better returns due to the power of compounding.
You have to wait for a longer period to earn returns and you won’t be able to meet your short-term financial goal.
You need to be familiar with the ins and outs of the market to make profitable trading decisions.
The long-term capital gain of less than Rs1 lakh is tax-free. If you earn a profit of more than Rs1 lakh on the sale of equity shares, you will need to pay 10% tax plus applicable cess.
Which is Better: Long-Term or Short-Term Trading?
There is no right answer to this. The decision entirely depends on your investment goals and risk aptitude. However, it is advisable to seek the professional expertise of an online stock trading company
like Ajmera x-change to make an informed decision.