Investing vs trading

Assalamu alaikum! What are the differences between investing and trading? Which one is more Shariah-Compliant?

In the capital market, investing and trading have different advantages. Here is the list of differences Musaffa provide to you.

  • Both methods have a different purposes

Investing in the stock market is an activity where the investor purchases the stock for a long period. In contrast with investing, trading is an activity where the trader buys the stock for a short period.

  • The strategy

The investor will buy the stocks that have good performance and hold it for an extended time. In comparison, the trader will purchase the stocks that the price has the probability to raise in a short time and sell it to generate profit.

  • The benefit

The investor might earn cash from the dividend. The dividend is the firm’s profit where the firm distributes to the shareholders according to their ownership. On the other hand, the trader might earn cash from capital gain. Capital gain is the profit where the buyer sells the stock higher than its previous price.

  • The analysis

The investor uses fundamental analysis to know the companies that have good performance. At the same time, the trader uses technical analysis to see the movement of the stock price.

transaction in stock market is classified as buying-purchase activity. As long as the subject-matter of transaction is halal stock, both trading and investing are sharia-compliant. One thing that may resemble as problem is the speculation behavior within trading activity as someone can lose or profit from the market at a short period time. It is important to note that stock market works in the principle of auction trade, which prices are driven by the power of supply and demand. In sharia term, auction refers to al-bay’ al-muzayadah that is sharia-compliant in nature. Within auction scheme to determine viability of price, counterparties need to know the quality of transacted goods and the proper price of the subject-matter. Hence, quick price movement is a fundamental nature of action trade.