If you’re relatively new to the forex world, you’re likely to find yourself asking questions about the many trading strategies people use. As there are so many different strategies, each with their own specific names and terminologies; it can be a confusing world to navigate.
Despite the intricacies surrounding forex trading, we’re here to help you find your way around all these definitions. Read our guide to speculation in forex to find out more. We’ll go on to discuss exactly how it works, describing some real-world examples of speculation and figuring out if it’s a profitable trading strategy. We’ll also go over some of the key tips that can help you on your way to becoming a forex speculator.
In the simplest terms possible… Speculating in forex is where you invest in stocks or currencies by looking at market fluctuations. You do this with the expectation that your investment will quickly rise in value, and that you will ultimately make a large profit. Speculation is not the same as making simple investments, as it’s a short-term activity that has substantially higher risks.
Speculation in Forex Explained
There are a couple of definitions associated with the word ‘speculation’ itself. One key definition is described as when somebody comes up with a theory, despite not having concrete evidence to back it up. In some ways, speculation in forex is very similar to this!
When you’re speculating in forex, you’re investing in stocks or currencies with the expectation that the value of these assets will soon rise. You’re making the investment, despite not being able to conjure solid evidence that the transaction will definitely be profitable. It’s not uncommon for speculators to lose their investments, due to the high level of risk involved with speculation.
The Difference Between Speculation and Simple Investment
There’s sometimes a bit of confusion regarding whether someone is using speculation in forex, or whether they’re simply making a normal investment. The way to distinguish between speculation and ordinary investing takes a few factors into account.
- With speculating in forex, there is more risk. Speculation means you’re buying an asset with almost equal chances of failure and success. i.e. you buy shares from a company in a volatile market. The company could go bust and you could lose your investment. Or, the company could make profits and swing the other way instead.
- Speculators are looking at the fluctuations in the market more than the actual value of assets. Investors are often investing large amounts in assets, such as in real estate, as these have a higher potential for bringing in more interest over time. Speculators, on the other hand, may trade in smaller amounts, but with more significant risks involved.
- Speculation is generally a short-term endeavor. Speculators will prefer to invest in shares that have a high chance of fluctuating value in just a short amount of time. Just how long a speculator waits before selling shares depends on the strategy of speculating that they’re using. It also depends on the level of risk they’re willing to take, as well as other factors, such as patience!
- Investors of simple investments are likely to use long-term buy and hold strategies. While these may take longer to accumulate profits (i.e. if you invest in a property with the intention of renting it out), simple investments are often a more stable, predictable way of investing.
Examples of Speculation Traders in Forex
Examples of those using speculation in forex are day traders, who generally purchase shares at a certain price point at the beginning of trading hours. They then wait the day out and trade the shares back once they have reached a certain level of profit. However, profit is not always guaranteed, as the value of shares can decrease instead.
Another example of a speculator would be a swing trader. Swing traders still work on a short-term basis; however, they generally wait a few weeks before making the decision to sell their shares. They make the decision to hold or sell by considering the changing prices of the markets and trying to figure out how they might change in the future. This is speculation.
Is Speculation in Forex Always Profitable?
As with all types of stock market trading, buying, and selling, there are risks in speculating in forex. With speculative trading, there is a large risk that you will lose out on your investment. This is because markets or currencies can fall in value with very little warning. While you might be investing with the aim of gaining a huge profit – i.e. you are ‘speculating’ that your investments will increase in value – things may not work out your way! You can try to avoid major losses by keeping an eye on market changes. This can help you determine whether values are likely to fall and if it’s worth taking the risk of speculating.
There is a lot of uncertainty regarding many forex markets. Nobody knows whether shares and currencies rise or fall in value as time goes on, especially in times of economic uncertainty. This means there’s a lot of risk in speculating, as markets move up and down.
Due to the high level of risk associated with speculation, you might be wondering why people choose to invest this way. The answer is simple: speculation does have the potential to earn a large amount of profit in a relatively short time frame. It’s great for those who don’t have the patience or assets to get involved with (often more costly) simple investments.
If you have a smaller amount of money but are willing to take a larger risk, speculation in forex might be a good starting point for you. If it doesn’t work out, not all is lost – though this does depend on how much you put into your investments. You can take a look at the risks involved with each investment and weigh up whether it’s the right choice for you. Read on to see a list of tips to follow when speculating in forex.
Speculation in Forex Tips
- Familiarise yourself with the psychology of speculation in forex.
Speculation involves a lot of risk, fear, gain, and loss. These emotions can quickly get the better of you, so it’s a good idea to read up on the psychology of trading and begin to identify when you’re letting emotion get in the way of logic.
- Losses can be disappointing. Don’t let them overcome your frame of mind.
Many investors swear by the idea that any losses they make are almost like business expenses. As with any financial venture, you need to put some money in if you’re going to make a profit.
- Figure out just how much risk you’re willing to take.
Setting yourself some boundaries can be a great way to pinpoint exactly when you should sell. You can’t expect that your speculative assets will continue to rise (or fall) forever.
- Stay updated with industry trends. Consider how they might impact the markets in the short-term. Speculation is fixated with anticipating moves in the market. You will fare much better if you are familiar with events and how they change the value of certain stocks and currencies.
- Find great speculation and trading mentors!
You’ll do better if you learn from the best yourself. Consider utilising resources from professional traders, such as Trade Room Plus. They’ll guide you towards the trading strategies that will work for you, through a variety of means. Watch the pros trade live as you learn exactly how they work, and begin your journey to trading success.
Trade Room Plus: Learn All You Need to Know About Forex Trading Strategies
If this article has piqued your interest and you’d like to know more about forex trading, you can visit Trade Room Plus for more information! As the UK’s leading stock market mentors and experts, the pros over at Trade Room Plus can help you figure out the right trading strategy for you. Whether it’s speculation or simple investments; they’re the ones that know exactly what they’re doing. Start making a profit today, with the extensive supply of resources available at Trade Room Plus.