Recent Blog Post : Financial Planning 7: Emergency Fund planning. Click here to view

Is there a difference between investing, speculating & trading?


Yes. Those three terms mean three different activities.

Assuming that you have decided to invest in a particular asset, we would like to ask a few questions. Have you learnt the basics? Do you know the rules of valuation and decision making? Do you know the potential of that asset and the risk you’re taking? If the answers to the above questions are ‘No’, you’re probably speculating.

When moeny is used to buys assets after proper research , you’re investing. Investing is a good thing to do. The odds to win are in your favor. On the other hand, when you speculate, you’re putting your money in sometrhing a bit recklessly. It may give you gains. But, the risk you take is very high. In short, odds-to-win are 50-50.

Some other positive aspects of investing are –

  • Investing is a “Buy and Hold” approach. It’s done with specific goals in mind –for e.g.-buying a home.
  • Money is invested in assets.  An asset can include anything from a small business to fine art, rare wines to gold coins, stocks, mutual funds, bonds, real estate, antiques, song rights, patents, trademarks, or other intellectual property. The basic idea is to sell it at a future date when the value of these assets appreciates.
  • Depending on the asset class in which you invest, the potential for profits and risk will also differ.
  • It’s a continuous effort. You put your money not once but several times after a lot of study and effort and wait for the thing to be favorable to you.
  • It’s a long process and results are achieved after a lot of hard work and analysis. It’s not by luck.
  • Investors achieve their targets by taking risks, positively.  They take risks in a very calculated way.

As opposed to all this, speculation is a little reckless. Money is put into assets without much analysis.

Gambling is like placing blind bets. The side effects are huge – People lose millions, the wealth of families has been wiped out, and many have ended their lives due to loss from gambling.  We know a lot of investors who take positions in options without knowing what they really are.

Benjamin Graham (the author of classic books Security Analysis and The Intelligent Investor)  is widely regarded as the father of financial analysis. In Graham’s words, “investment is most successful when it is most businesslike. An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative”-(Benjamin Graham, security analysis,1951)


Trading means buying something at low prices and selling it for a gain. So, it’s basically a short term activity. Trading can be done in many fields. The crucial factor that distinguishes a trade from an investment is the length of time you hold on to the assets. The approach of traders would be to Buy & sell as soon as possible for short margins, at the earliest.

Generally, short term price fluctuations are caused by the variations in the demand and supply of a particular asset. So, traders generally rely on Technical Analysis, a form of analysis that attempts to predict short-term price fluctuations using graphs, charts and oscillators.

That’s the difference between investing, trading and speculating.

Leave a Reply