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Investing Trading and Speculating Differ

Investing trading and speculating differ

There are multiple ways to make money in the market. Investing, trading and speculating each take a different approach and hold positions for different periods of time.

Investing, Trading and Speculating Strategies Differ in Basic Approach and Holding Terms

Stock market investing, trading and speculating all have fundamental differences in both approach and the length of time a position gets held. The basic differences in the three approaches include:

  1. Investing – buying shares in companies seeking income or equity growth. Profitable or growing companies attract investors. Investors seek income from financially stable or growing companies at low to moderate risk. This is the income building approach that forms a solid conservative investing base. Low or moderate risk positions can produce steady returns. Managing this basic conservative approach requires minimal time commitments. Investing strategies range from ultra risk avoiding to moderate risk acceptance.

  2. Trading – buying shares that are rising in price or are soon expected to move to higher share prices. Share price movement, not revenue or bottom line profit, attract traders. Traders accept more risk and price volatility as the trade-off to seek considerably higher returns, compared to income investing. This is the equity growth approach. It can produce dramatically increased returns but at higher risk. To do it well, trading takes considerably more time than investing does. Trading strategies range from moderate to high risk.

  3. Speculating – the potential or at times the dream of dramatically higher share prices attracts speculators. Speculators seek spectacular share price gains from stock market trading action. Speculations are the highest risk of the basic investing approaches. In fact, most speculations are high to extreme risk. Speculation is the shoot for the moon, home run seeking, swing for the fences, let it all hang out, high risk – high reward approach. It can produce spectacular upsides but can also produce no returns or real and at times total loss of capital. Well done speculation requires much knowledge, close attention and lots of time. Speculation is a high risk strategy.

Opportunities Take A Little Time, Some A Lot More!

The time period for people holding positions using each approach can vary from a few seconds to many years. Holding periods group as:

  1. Investing holding term – at a least 1 – 3 years. Ideally investment holdings are kept for many years. There are few transactions with this approach. A portfolio of winners is a beautiful and productive financial creation.

  2. Trading holding term – traders buy and sell positions in seconds, days, weeks or months. Few traders hold for over a year. Other than short-term or day-trading, most traders hold positions for a few weeks or many months. Generally, traders buy positions either anticipating a rising stock price or wait until the stock price actually begins moving up. They sell when the price movement stops. This approach has many transactions. Portfolios of traders usually have some spectacular winners and more moderate gainers. But traders also have duds the do not move and of course, losing positions that went the wrong way. 

  3. Speculating holding term – normally speculators hold for weeks or months. This higher risk approach can mean holding positions for very long or for very short periods. Winners are the stock market shooting stars that move decimal points, losers are the sunk ships that take all your capital to the bottom. Speculation results vary over the widest possible range. Knowledgeable speculation, done well in the right circumstances, produces stunning returns. On average, most speculations produce tears.  

Investing Trading And Speculating Differ And More

Beside the basic differences already discussed, there are many other approaches to the stock market. Within each approach there are many strategic variations. The White Top View focus remains informing investors of the basics so they become informed confident and able investors.

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