Investing, Trading, Speculating Stocks: The Differences


There are different ways to make money off of the stock market. You can practically use hundreds of different strategies. Stock investing, stock trading, and stock speculating may appear to be different words to the same activity, but they actually have a lot of differences.

Investing, Trading, Speculation

Stock Investing

Investing focuses largely on fundamentals, which usually are long-term drivers of stock prices. The long-term investor waits out the zigzag as long as the bullish outlook and the general market condition is favorable.

One good thing for investors is that it involves fewer number of transaction costs and there are usually lower taxes. The downside is that sometimes the stock can go into a correction (go down temporarily) or have periods of lackluster performance. The long-term investor has to tolerate such occurrence.

Stock Trading

In trading, there are more activities that take place in the course of a few days, weeks, or months. Traders may ditch stock losers right away and cash out winner in order to lock in some profits before the next slide in price.

Trading can entail higher costs because of frequent commissions and short-term taxable gains. For trading, fundamentals are either not a factor or at best a secondary minor factor due to the short-term movements in a stock price are more geared to momentum and sentiment.

Stock Speculating

Speculating is usually considered as a form of “financial gambling.” As a speculator, you’re not investing in the conventional way. Rather, you’re making an educated guess about which way the stock price will head. Speculating is usually associated with a short-term time frame, though it can also be long-term.

Overall, it may be said that trading is short-term speculating and speculating is a much smaller dimension of investing.

The Time Factor

Before, it was easy to distinguish short term, intermediate term, and long term.

·         Short term referred to less than one year; some would even consider less than two years.

·         Intermediate term referred to usually one to three years or one to five years.

·         Long term referred to longer than five years.

Recently, on the other hand, investors have become very much impatient. For some, short term now refers to days. Intermediate term now refers to weeks. And long term now refers to months and years.

If the investment performs well, the investor will sell it immediately and move on potentially profitable investment. On the other hand, if the investment goes down, the investor will sell it right way to minimize their losses to search more better prospects elsewhere.

Psychological Factors

When it comes to investing, you sometimes have to be very analytical. You can look at a stock and its fundamentals and then at the prospects for the stock’s industry and the general economy. Then you can make a good choice knowing that you’re not concerned about the prices going up or down a few percentage points in the next few days or weeks.

Meanwhile, trading involves focusing on stocks that have the ability to move quickly (enough volatility), regardless of the direction. Sometimes traders look very little at the company’s underlying fundamentals. Seasoned traders usually aim to make money more quickly and capitalize of crowd psychology and market movements.

Stock trading is short-term speculating since the trader is making an educated guess about something that’s not measured right off the bat: knowing which way the market will move.


Investing, trading, and speculation are three different ways to earn something out of the stock market. The strategy you will use will depend on various factors, such as your risk tolerance, your lifestyle, the amount of capital you can whip out, your risk management skills, and others.

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