Have you ever wondered if you are investing or speculating when trading on Olymp Trade? I’m sure many traders have been around for a long time but still confuse the two concepts of speculation and investment with each other or don’t understand what speculation is. Despite both methods sharing the same goal of making profits in the market, understanding them will help you choose the one that suits you best.
What is speculation? What is investment?
Speculation is the purchase of an asset in the hope that it will become more valuable in the near future. Often, you will see this happen with essential goods that are in short supply. In finance, this is a form of short-term trading with the expectation of high profits and high risks.
Investing is buying and holding valuable assets to earn money through dividends or interests.
Society will usually condemn speculators because they do not create beneficial value. And the gold market is where speculators often enter to seek profits.
That’s the negative side but this way of making money still has positive sides such as:
- Provide capital to the market
- Help the market create liquidity
- Make it easy for other investors to use professional skills such as capital management and arbitrage to eliminate risk.
What is the difference between speculation and investment?
The main and most obvious differences between these 2 forms are:
– Speculation focuses only on price movements.
– Investment is concerned with the real value of goods.
You’ll find that speculators earn higher returns than investors. However, many people consider this to be nothing more than a red and black roulette. In fact, only some people use speculative names to gamble. The rest still use fundamental analysis, technical analysis, and capital management to make decisions, not completely relying on luck as people often think.
Investment activities usually take place over a long period of one year or more. Meanwhile, speculation usually lasts shortly under a year, sometimes just a few minutes.
The amount used for speculation is often much more modest than for investment. Therefore, this form will attract more participants. Meanwhile, investments are usually made mainly by people with large amounts of capital.
Investors typically use their idle money to invest and expect to profit from the change in the value of the asset. In contrast, speculators may borrow or raise capital from others to fulfill their purpose and focus on profiting from price fluctuations due to the difference in supply and demand.
In which sector do speculative activities mainly take place?
Reviewing the above definition, it can be affirmed that Forex is a form of speculation. Because you don’t own any assets when you trade through forex brokers and then profit from the price difference during the execution period.
There is also another thing that you often come across on major social networking sites, which is cryptocurrency. In my opinion, this is a form of investment, not speculation as people often say. You own them in your crypto wallets and wait until the value increases, then sell them to make a profit.
To talk about making-money methods, first of all, it is necessary to determine the source of capital and personality. If you have a small amount of capital but prefer to make a lot of money in the short term, you should choose to speculate. Conversely, if you have great financial potential (or idle money), investing will be a less risky form for you. Of course, the return on investment will be lower.
Which method you choose is up to you. But remember that no matter what form you choose, you need money. It is best to use idle money, not borrow beyond your ability to pay. If borrowing, it must be calculated so that the interest and principal must be less than 50% of your income. Good luck!
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