Investing vs Trading vs Speculation

Hi there,

In this article, i would like to talk about the difference between three terms – investing, Trading and Speculation.

INVESTING

Investing is the proactive use of money to make more money or, to say it another way, you make your money work for you.

When you invest, you are buying an asset like shares, real estate or gold. The basic idea is to sell it at a future date when the value of these assets appreciates.

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.

Good investments are the soundest way of growing wealthy but can take time, perhaps even years, to work out because we live in an uncertain world.

Depending on the asset class in which you invest, the potential for profits and risk will also differ.

Investors adopt a “Buy and Hold” approach.

TRADING

Trading is a more short term activity than investing. It’s buying something at low prices and selling it for a gain. Trading can be done in many fields. So the crucial factor that distinguishes a trade from an investment is the length of time you hold on to the assets.

A trader is always concerned about short-term fluctuations in prices, because he’ll even out them in the long run. Traders adopt a “Buy & sell” approach.

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 marketing analysis that attempts to predict short-term price fluctuations using graphs, charts and oscillators.

SPECULATION

A speculator is nothing but a man who makes his living out of hope.

I don’t think I should explain it in more detail.

Benjamin Graham the author of classic books Security Analysis and The Intelligent Investor is regarded as the father of financial analysis. Graham’s key insight is the premise that “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)

Now, at this point of time, It is unnecessary to start a complex discussion about investing, trading and saving.  What is important is to understand that investing; trading and speculation are three different things. Since we are discussing about shares and stocks for trading or investment, our next chapter discusses about shares and stock markets in detail..

Till my next article …….

………..have a nice day !!

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5 Responses to “Investing vs Trading vs Speculation”

sahal.p.j

January 1, 2011 at 2:25 pm

sir,
please give me information about future and option trading.

J Victor

January 1, 2011 at 7:55 pm

sahal , Please keep track of beginner’s lessons. Detailed lessons on Futures and options are comming up soon .

Voncile

September 21, 2011 at 11:55 pm

I’m ralely into it, thanks for this great stuff!

Roshni Bhatia

February 19, 2012 at 2:01 pm

There is a very thin line of difference between the three. People interchangeably use these words:investing, speculating, trading and consider it to be the same, but certainly the fact is, that there is a lot of difference which clearly comes out from your article. Thanks for sharing.

Christy

March 26, 2012 at 1:10 pm

Great article! I loved the insight and the information given . In addition, your blogging style is very fun to read.

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