How you handle your money in the financial market, and what you put it into, are personal choices based on a number of factors: your risk tolerance, time horizon, investment skills, interests, and goals. These are what determine if you are in the market for the long haul or just in it for scraps.
Investing in financial markets has raised interest all over the world. From inception, currency trading was a preserve for multinational corporations and well-endowed investors. The Forex market has, however, opened up the financial market to the average investors. Investing, gambling, and speculation are indeed three different ways of investing in currencies or stocks. The major difference is the emotions that drive their decisions. Is it greed, fear, optimism, or something else? Each one of them responds differently to the forex market, which helps us to categorize them as speculators, gamblers, or investors.
DEFINITIONS
In financial terms, investment is putting money into something with the expectation of making more money, within an expected period of time. In contrast, gambling is putting money into something with an expectation of gain without considering the risk involved, or the preservation of capital. Speculation is an act of buying and selling under the conditions of uncertainty with a view to earn huge gains.
THE FOREX MARKET
In forex trading, large amounts of foreign currencies are bought just like buying stocks, bonds, or mutual funds. The major difference when comparing Stocks and bonds with forex is that instead of trying to earn a profit through the value of that investment going up, profit is made in forex when the value of that currency moves in any direction positioned for (up or down). An important question to ask as a trader is: have you been speculating, gambling, or investing? Every one of them is important for the forex market to flow. It is best to define what role suits you and fine tune the best strategy to adopt.
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SPECULATORS
Speculators have a fundamental role in the financial markets. Speculation is trading on the belief that a currency price will go up or down. There is always a risk, because the belief can be wrong. For every transaction in the markets, there are buyers and sellers. It is called speculation because of the uncertainty involved as no one knows for sure the direction the market will be going, up or down. Speculators consider this possibility before placing a trade. When a fraction of a particular stock is bought, an equivalent number of same shares are being sold somewhere. Speculation is often looked upon with suspicion. People see traditional investment instruments such as stocks and bonds as positive influences that contribute to economic growth because they put money into it. Currency speculation on the other hand is viewed as a negative activity in that it is likened to gambling that interferes with the growth a nation’s economy.
GAMBLERS
Many novices in the trading industry believe that there may not seem to be much that
separates gambling from foreign currency trading. Mastering the emotional outcome involved in trades is a skill set on its own and this is what separates serious traders from gamblers. When money is won in trading, there is a feeling of excitement, heart beats faster and joy from the profit is so loud that it is so undeniable. On the other hand, when money is lost, sadness, frustration, and anxiety take over.
These emotions are so strong that they are so irresistible that a newbie trader can hardly control them and as we already know among the strongest sources of these emotions are Fear and Greed.
These are obvious reasons why gamblers are set apart from other categories of traders.
Unfortunately, majority of people fall into the gambling side of trading because they treat trading as gambling and then they blame that trading is gambling because they have lost control and money. Forex Trading can become gambling if you treat it like the casinos. If you have no plan, no strategy, or no systematic approach to the market, and you rely solely on luck, then the outcome will always be a loss because you are trading against the big guns who not only have an overview of the market as such, but they also know the behaviour of the masses. This almost always put them at an advantage over majority of traders in the market.
INVESTORS
Nowadays, it seems that anyone who puts money into anything sees himself as an investor. However, does buying a fractional unit of a currency in an online trading account qualify someone as an investor? What are you in the financial market for?
Most of the successful investors give the answer to this without blinking. Reason being that they know why and what they are putting their money into. They care to do research and at least understand the risks involved. Every other person puts money because they see an opportunity and that’s not enough. In fact it’s risky; literally throwing money expecting it to bounce back not considering that there are good and bad days. The major investment needed in forex trading is to put in the time and energy to learn about the market and the safest ways to trade in it.
Forex is not really a pure investment but it provides a good opportunity to make money. Until now, only big corporations would trade forex because of the huge initial capital requirements. But today, brokerage firms have helped open up the market for small-scale investors.
The good thing about the forex market is that it has something for everyone if you are going the investment route. If you are looking for a long term investment deal and larger profits, there is position trading. If you want short term in order to have something to take home every day, there is day trading. All these boils down to your personal decision and you would need to acquire skill enough to tackle the responsibility.
In conclusion, these categories of traders are different from each other, yet they are
interwoven as well. Investors, depending on their specific actions and intentions, might also be speculators. And speculators, on occasion, can be described as investors – or gamblers.
Which one are you?
Suffice to say there are a lot of ways to trade in forex. But a prerequisite for all of them is that the person trading should know why they’re doing what they’re doing and have a solid plan and strategy dictating their moves. For this they need to have experience and understanding of the market. There are ways to learn about the market. There are a lot of online resources available that will serve you just fine. If you go in without any preparation and without taking into account all the ways in which you will be putting your hard earned money at risk, it will prove to be a very bad investment. So do your research and figure out if you and the forex market are a good match.
PRECIOUS OBULE
BUSINESS DEVELOPMEMT MANAGER
GEMINI CAPITAL MARKETS LIMITED
Gemini Capital Market is a bespoke Forex and CFD’s broker in Nigeria, with offices in over 9 countries including Australia, Hong Kong, and the Uk.
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