Speculation or speculating is the main that traders do when they are taking on positions in the markets. Speculating is the real purpose behind why people would be interested in trading any market. Of course, for most people, the purpose of trading is to make money. However, what we actually do in the business of trading is something called Speculation.
A technical definition of speculation is:
Speculation is the act of trading in an asset or conducting a financial transaction, that has a risk of losing some, most or all of the initial capital, in expectation of a considerable profit. With speculation, the risk of losing money is offset by the possibility of a large profit. Without the potential for large profits, there would be a limited incentive to speculate. Speculation is sometimes confused with gambling, the key difference is that speculation is generally taking a calculated risk and is not dependent on chance alone, whereas gambling depends on totally random outcomes or chance.
It is true that there are many people who treat trading just like they would treat gambling. This is why trading sometimes gets a bad name in the media. Unfortunately, many people who trade are indeed gambling, but some of them simply don’t know that is what they are doing.
Not everyone who comes to trading is fortunate to get the right training and have the correct mental frame of mind to be successful. This is why we will spend some time in this article focusing on ways traders can speculate professionally rather than like a gambler.
Trading is a Business just like any other Business
An interesting thing is that most people who come to the business of trading don’t know that what they are actually doing is gambling. They just know that they have been taught a system or trading approach and that this new idea is going to help make them more money. However, just because certain people treat trading like gambling, this doesn’t mean that all forms of trading are pure gambling. Quite the opposite actually.
New traders don’t seem to know that when you approach the business of trading you have to arm yourself with all the traditional tools that you would need if you decided that you wanted to open up a local pizza shop or a clothing store, for example. Traders need a plan of action and a way to measure their results. They need a strong understanding of how to manage their financial risks so that they don’t go out of business.
No one in their right mind would put up tens of thousands of dollars to open up a brick-and-mortar store without a well-thought-out business plan. But so many traders come to the market with unrealistic expectations of what is achievable in a short period of time without carefully examining all the risks. This is one of the reasons why the term “Trader” gets a bad rap in the media.