Investing, Trading & Arbitrage
Three different ways to try to make money in markets, the kind of risk each one takes, and why “risk-free” arbitrage is much harder than it sounds.
Three approaches, three kinds of risk
People often use “investing” and “trading” as if they mean the same thing. They do not, and neither is the same as arbitrage. Each approach makes money in a different way and takes a different kind of risk. Understanding the difference helps you choose what fits you and recognize what someone is really selling when they promise returns.
| Investing | Trading | Arbitrage | |
|---|---|---|---|
| How you make money | Business growth, dividends, compounding | Price moves over days to months | Price differences for the same asset |
| Typical holding period | Years | Days to months | Seconds to weeks |
| Main risk | Long bear markets, business failure | Being wrong on direction or timing | Execution, costs, deals breaking |
| Main skill | Patience, business analysis | Risk management, chart reading | Speed, capital, precision |
A simplified comparison. Many people combine investing and trading.
Unlock all of Investing School
The rest of this lesson, its chart examples and quiz are part of Investing School. Start free with Stock Market Fundamentals and the first lesson in every category.