The Major Differences Between Investing And Speculating – Investment Watch


Traders and investors take risks that are very calculated in their attempt to make some profit from their market transactions. The main difference that lies between investment and speculation is the risk level involved. High-risk speculation is likened to a gamble, while investment uses analysis based on the fundamentals.


Investing is varied and could be monetary, energy, or time-based. Financially, investment refers to buying and selling of securities such as bonds, stock, mutual funds, exchange-traded funds, etc. Investors look to generate an income or make profits by getting a good ROI (Return on Investment) by taking an average or low-level risk on the trading platform.

 Income comes in many forms, one being the appreciation of an asset or getting a regular dividend, or a return of the full amount invested. Investment is mostly investing in an asset for the long term, mainly for a year or more.

Research And Analysis

Research and analysis is a critical step in the process of investing. It comprises of asset evaluation and trading platform trends. Investors should make use of tools such as technical or fundamental analysis to choose an investment strategy.

Using fundamental analysis can help an investor determine the macro and microeconomic factors affecting security values. Technical analysis makes use of trends in statistics such as security volumes and prices to spot opportunities on the trading platform.

Brokerage Firms

Investors have various options to invest their funds. Brokerage firms allow investors to gain access to multiple securities. Opening a brokerage account enables an investor to deposit funds and place orders via the brokerage firm.

The income and assets belong to the investor, while the brokerage firm earns a commission for trade facilitation. Technology advancement allows investors to invest in using Robo-advisers. Robo-advisers are investment firms that make use of complex algorithms to formulate investment strategies based on the investor’s goals and level of risk tolerance.


Speculating is placing funds into financial ventures with a very high failure probability. Speculating seeks for abnormal returns from a bet that can go either way. Thinking is typically compared to gambling, but there are differences. In speculation, an investor makes informed guesses on their trade direction. The risk in speculating is way above average. Speculative traders buy securities, with the knowledge that they will hold them for only a short time before selling them on a trading platform.

Types of speculative Traders

Day trading is one method of speculating. Day traders are only called this because they trade during the day, not for any qualifications. They hold their position on a trading platform for a day and close when the trading session ends.

On the other hand, a swing trader holds a position on a trading platform for several weeks, hoping to capitalize on the gains within that period. They do this by trying to tell which direction the price os a stock will move, and taking a position, hoping to make a profit. An example is the Shanghai new STAR technology board which made high gains before speculators made huge profits

Speculator Trades

Speculators make many types of trades. These are:

Future contracts: Buyers and sellers come to an agreement on the sale of a particular asset at a mutually agreeable amount at a specific time in the future

Put and call options: The owner of a contract reserves the right but is not obligated to sell a part of security at an agreed price at a specific period. A call option allows the contract owner to buy the asset before the contract expires.

Short Selling: Short selling means speculation on the price of security dropping in the future and taking a position.


The difference between investment and speculation is the long-term and short term aspect of it. Investing is intending to buy assets held for the long term.

Speculation is linked to trading as it focuses more on short- term trading. Speculators use financial imitations such as futures contracts, options contracts, and other investments, instead of buying and holding securities.


Disclaimer: This content does not necessarily represent the views of IWB.