Trading, in general, refers to the activity of transferring goods between two persons. In the investment space, it refers to the trading of assets for a profit, or sometimes a loss. One thing you should know about trading is that it involves significant risks. Depending on the asset you are trading, you should be ready to take some risks to make good profits in trading.
Note: Trading should not be confused with investing, which is the process of allocating funds in a particular asset for a certain period (usually long term) with the expectation of making a profit. Investing involves lesser risk
There is a third way of generating income from assets. It’s called dividends. It involves acquiring assets that pay regular dividends. It’s just like you receive interest on your money deposited in a bank account.
Same as stocks, now there are cryptocurrencies that pay dividends to the holders.
Dividends Vs. Trading
The major difference between dividends and trading is that dividends are a passive income source while trading requires you to actively participate in the buying-selling process.
Trading involves more risk because there is a higher chance to incur a loss when you are buying and selling more frequently. Dividends, on the other hand, are earned for holding an asset. This involves zero risk and you receive guaranteed income with no need to be actively involved in the process.
Same as stock dividends, there are now crypto dividends, where you can acquire and hold cryptocurrencies to earn regular passive income.
How did crypto dividends work?
Some cryptocurrencies will pay you recurring interest for holding them. This is just like stocks, where a portion of the company’s profits are distributed to shareholders. In most cases, cryptocurrencies that pay dividends will distribute a portion of the company’s revenue with its token holders. The amount and frequency of dividends will depend on the particular cryptocurrency.
How are dividends better than trading for profits?
Passive income
The biggest benefit of dividends is that they are a passive source of income. The investor is not required to be actively involved or do anything in order to receive dividends. They will receive dividends for simply buying and holding a particular asset.
Low risk
Unlike crypto trading, crypto dividends are secure and have lower risk. You are not selling anything and will, therefore, not incur a loss. You are simply buying and holding an asset that promises to pay your recurring dividends.
High growth potential
When you hold an asset for the long term, you are essentially giving it the space and time to grow. And good assets and cryptocurrencies will certainly grow with time, and you can make much bigger profits from your long-term holdings than you can from day trading.
With so many good dividend-paying options like cryptocurrencies out there, it’s now easier than ever to earn a passive income through dividends.
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PLEASE NOTE: Nothing in this article constitutes professional investment advice. Please do your own thorough research before making any investment decision.