Development - March 23, 2021

Long-Term Trading vs Short-Term Trading: Which one is for you? - EnclaveFX

The choice of trade strategy can be a tedious task for a new trader. Differences between short-term and long-term trading, especially, may be hard to understand for novices. This can lead them into a fox about the best forex trading online platform for their trading behaviour. In this article, we will explore the two trading types and their differences in detail.

Difference Between Long Term and Short Term Trading

Commonly known as day trading, the short term trade is carried out for a few days or weeks. The entry and exit time duration are restricted to a few days. This type of trading allows the trader to make fast money with limited market risks. 

Long term trading is for traders who rely on the future outlook of the stock market. Long-term trade or position trading involves investment periods that may go up to a couple of weeks or even years. This allows trading in competitive instruments.  

Let us now look at how these two differ in detail:

  • Capital Necessities 

The type of trade you choose depends largely on the capital funds that you possess. Buy-and-sell investors require at least $1000 for currency markets and $25000 of the account balance for day-trading in countries like the US. For buy-and-hold investors, however, the options are limited. Long term investing is carried out mostly in the stock market with several equities to choose from. 

In conclusion, there is no set minimum capital requirement for trading. However, it is advisable to consider the commissions before trading with small amounts of funds. 

  • Skills Required

For Short Term trade, one does not need to have the necessary skills; only basic trading knowledge is required to carry out these trades. However, for long-term trading, you need to have effective research skills, strategy development and evaluation skills, and eventually, strategy implementation knowledge. 

  • Personality Traits

Fundamentally, the greatest prerequisite is persistence and command over your feelings, as you can’t bear to freeze or respond before everything looks good. 

Short-term traders should have efficient, emotional discipline to avoid poor performance. 

In long-term trading, you need patience. It is vital that you patiently wait for your funds to grow before reaping profits from them. 

  • Time Commitments

Another significant distinction between long term and day-trade is the amount of time you want to commit to the market. 

If you wish to invest in short term trade, then the most suitable time is the opening hour of the market. You will need to commit at least 15 hours per week when day-trading. Whereas for long-term trading, a commitment of a couple of hours per month is required. It consumes time at the initial stage of developing strategies, but after that, this type of trade only needs a few hours a month. 

  • Potential Returns 

There is a major difference between the potential returns of short term and long term trading. It is difficult to compare the two. 

Short-term trade requires a large portion of your time while compounding quickly. Your investment account may balloon up or shrink down in a matter of days. 

With long term trade, the average gains may go up to 10% per year. But this too depends on the year as the gains may go even lower. 

There is no way of pointing out a better form of trade. The trade choices depend on the time and capital investment a person or firm is ready to make. Hence, one should analyse all the above-mentioned points and then choose the trade which is best suited for them.

Need Help?

If you are new in the trading market, it is advised to look along the given lines before you start forex trading online. Contact EnclaveFX for further information about which trading strategy you should choose.