What Is the Difference Between Speculating, Trading, and Investing?

It’s important to understand the mechanics behind each approach.

Becoming financially literate is perhaps one of the most important skills you can learn on the path to financial freedom. With so many ways to put your money to work, it’s important to understand the mechanics behind each approach. With that in mind, let’s take a deeper dive into the difference between speculating, trading, and investing.

Difference Between Speculating, Trading, and Investing


When you think about it, we are actually doing this most of the time, be it about the weather, the cast of a hotly-anticipated film or what Facebook might be doing with our data. In essence, it’s simply taking what you know now and predicting the likelihood of a certain outcome.

Despite being a fantastic conversation starter, in the investment world, speculating essentially puts cold hard cash on the line for those hunches. It can be both highly risky and highly profitable.

As the well-known band, Faithless once sang in their song Reverence, you don’t need eyes to see, you need vision. And nothing could be more important when choosing this approach to your wealth management. The most successful speculative investors, sometimes known as Angel Investors, are often highly inquisitive. They constantly imagine future opportunities within their fields of expertise.

This “vision” and forward-thinking not only allows them to be entrepreneurial with their own business ideas, but it also lets them connect the dots and spot companies with huge upside potential, very early within their success trajectory.

This allows them to inject capital into vastly undervalued assets before they become widely known. Jeff Bezos, the founder of Amazon, for example, was an early Angel investor in a fledgling internet search company called BackRub (oh the irony). It went on, of course, to be known as Google.

While many Angel Investment opportunities remain in the domain of a privileged few, speculative investment has now become much more mainstream and accessible. Initially through fundraising platforms like Kickstarter, Indigogo, and Seeders. But in recent times, via new investment vehicles like ICOs or STO offerings.

These new ways to raise capital have somewhat leveled the playing field exposing a whole new class of mainstream retail investors to the exciting and potentially lucrative world of speculative investment.


It’s crazy to think that our earliest ancestors were traders, bartering goods between tribes back in prehistoric times. To put this into some kind of perspective as to how deeply embedded into the human psyche it is, that’s around the same time as the first-ever human communication some 150,000 years ago!

But fast-forward to 2019 and you’d be forgiven for being confused by the huge variety and complex methods by which you can perform this ancient and simple action.

For all its apparent modern sophistication, trading, specifically in relation to stocks, shares or cryptocurrencies, is simply the act of buying something for one price and selling it for another, with the goal of making a profit.

While trading does indeed involve an element of both investment and speculation, it differs from both in that its proponents may not even care or understand what it is they are buying or selling.

As Adam pointed out during the TraderCobb Podcast. He managed an 8-month winning streak on Betfair without any knowledge of horse racing at all. He just knew what he could buy the bet for and what he could sell it at.

Types of Trading Strategies

Depending on the type of trading being undertaken, there is a number of different trading strategies that can be employed. What tends to separate them is the timeline over which the trade takes place alongside the type of analysis deployed, specifically to judge the risk and reward.

The Digitex Futures platform will finally make it viable for retail traders through commission-free trades, to pursue a trading style called scalping.

In this approach, the gap between the trader buying the asset and selling it may be no longer than a few minutes; perhaps even seconds.

But by employing tools such as order flow, ladder trading interfaces or algorithms (automated trading programs called bots), traders can execute lots of trades quickly. With a commission-free platform, disciplined traders will be able to turn small profits into large gains over time.


Investing is of course, fundamental to both trading and speculating, as, by definition, it represents the “what” you risk when pursuing these strategies. However, in the general sense, the difference between speculating, trading, and investing is that investing represents money-making strategies that are generally over much longer timelines. These can often be years, and with much lower volatility and risk/reward profiles.

The vast majority of people who invest are doing so for long-term goals, such as retirement, or future financial freedom. As a result of this, making an investment is almost always based on something that has a solid (and preferably a long history) of stable growth and returns.

As with many financial services, investment as a financial vehicle has experienced a Cambrian explosion of innovation, driven in part by the cryptocurrency and fintech industries.

This has lead to a dizzying amount of ways you can invest and made it easier than ever before to do so. From more traditional markets like stocks and shares, tracker funds or ETFs to cutting-edge uses such as Crypto Asset Lending; there’s no shortage of places to put your money.

Ultimately, whichever investment instrument you choose, your goal is to gradually build wealth over an extended period. If you are sensible and have time on your side, it can be a very stress-free way to manage and grow your wealth, often insulating you from the impact of short-term market fluctuations.

Wrapping It Up

While the difference between speculating, trading, and investing is clear, there is certainly one aspect that is common to them all. That’s taking full responsibility for judging your risk vs your reward.

Of course, what you’re willing to risk for what reward is just as unique as your personality. But truly analyzing this and how you make these judgments can be highly revealing on a personal level.

Any time you take to learn and understand this is perhaps the most worthwhile investment you can make. It will help you make not just better financial judgments, but better decisions all round.

With the upcoming Digitex platform, we are committed to producing successful traders. Commission-free trades and a provably fair matching engine will level the playing field more than ever. So whatever investment strategy suits you best, there is a place for you on the exchange.

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