Are you a Speculator?

In the world of Forex. Any individual who is exchanges currencies not because of an underlying product but for any other reason is considered a speculator.

Actually, this definition also applies to any other market, although, the legal (official) definition is quite a bit longer in the legal books.

E.g. a company importing jewelry from China is not a speculator as it needs currency exchange to execute the trade or to hedge against some risk. In short they buy currencies for use.

However, banks, individuals, professional investors are all can be considered as speculators. They buy, sell or hold currencies for profit which is the exact definition of a speculator.

Why is speculator a bad word?

I don't know.

There is no such thing as speculators vs investors based on the definition of the world. The opposite of the speculator is the "looser". Speculator trades for profit, losers on the other hand loose.

Speculators are Important

Speculators give value to the market and no free market can exist without them:

  • They provide liquidity to the market. Without them who would buy or sell you on certain days?
  • They lessen the price swings (volatility) by their own activity to profit which is beneficial for the industry.
  • Speculators (be big or small) who finance the activity of companies who are hedging their trading on the commodity futures market. So real companies with real products need the financing that speculators provide for their activities.

Speculators, actually, can be considered as the innocent guys who might loose their money just because they helped these companies by giving them their money on the future contracts if the large players (the actually companies) move the other directions - if the supply and demand changes.

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