Like any person who expects to get paid for the job done, a Forex trader first of all expects his efforts to bring him profit. Some people come to the financial market to trade or speculate, others to invest.
Article content
The main difference between investing and speculating is the degree of risk. Speculation usually involves high risk and is often compared to gambling. While low-risk investment based on fundamentals and market analysis can generate decent returns.
Which activity will make you more money – speculating or investing?
There is no definite answer to this question. Although speculators are subject to higher risks and can incur big losses, their profit can be very substantial as well. Investing is less risky, but the yield here is also relatively moderate. Any market participant has the opportunity to engage in both speculation and investment. Once the capital distribution between these two options is balanced out correctly, it will become possible to manage the risk. The more long-term investments from which you can receive dividends or interest you have in your portfolio, the lower is your risk level.
Investment and speculation have the following differences
- Timeframe. It is believed that if the position is kept for more than a year, then it is considered an investment. If less than a year has passed between the opening and closing of a position, then it’s considered a trade or speculation.
- Taking profits. If an asset was bought to sell it later at a higher price, then this is speculation. With investing, a trade is opened to receive profit in the form of dividends (or interest).
- Risk and return. As a rule, the profit from speculation is higher. While you are maintaining an investment, you can open several highly profitable speculative orders. At the same time, it is necessary to keep in mind the level of risk, especially if you are trading with borrowed funds.
Which is easier
To become a successful trader and receive a stable income in the market, you need to spend a lot of time learning, developing your trading strategy, and gaining experience. All these actions are carried out by the trader only at his own expense. Many professional speculators are constantly reminded of this.
Linda Raschke, a trader, a former head fund manager, president of LBRGroup, Inc, and the author of several books about trading noted that to trade successfully, you need to choose one market or system and carefully study it. She has her own ritual, which usually takes around 30 minutes a day. : Try to get in tune with the market. Spot the support and resistance levels and analyze how the price behaves as it approaches these levels. Determine the intraday range. Forecast tomorrow’s price movement. Will it be a trend or a consolidation day? If it’s a trend day, try to determine whether the price will move higher or lower? Try to predict tomorrow’s high/low.
It is much easier to become a long-term investor. To do this, you just need to buy a stock or other asset and keep it in your portfolio, not paying attention to temporary drawdowns that may occur from time to time. The main rule for an investor is to be patient.
It’s not that hard to get the average returns that legendary investor Warren Buffett was betting on. Exchange-Traded Funds (ETFs) were created specifically for this purpose.
The main difference between investing and speculating is the level of risk the market participant is willing to take on. Investors can expect moderate profits without taking much risk, while speculators who are willing to take higher risks can get the maximum profit in a short time.
To get a tangible result on the stock exchange, we recommended learning both how to invest and speculate. Investing will allow you to determine the true value of an asset and its prospects, and speculation or trading will teach you how to find the best time to enter and exit the market.
If you like our articles, follow us on Facebook and Instagram. Stay tuned for more interesting posts on our blog. We post new material several times a week.
