You’ve probably heard the phrase “You have to speculate to accumulate” when it comes to money making but what is speculation in forex?
Speculation in forex refers to the buying and selling of currencies with the intention of making a profit, even when there is a substantial risk of losing value too. When speculative trades involve the purchase of a foreign currency, it is known as currency speculation.
This uncertainty in speculative trading arises because nobody knows for sure how any given market will move. Traders therefore have to speculate using their educated judgment on where they think the market will go next. Their speculation helps them to decide when and how to enter and exit trades in order to try and make a profit on their investment.
We’re sure you’re already aware that trading forex and uncertainty go hand in hand - just like all online trading markets. If you’re a regular reader of articles from Trade Room Plus, you will have heard us say hundreds of times that there are absolutely no guarantees in trading except for the fact you will lose money along the way.
For speculative traders, this risk of loss is more than offset by the potential for financial gain and forex speculators tend to enjoy the thrill of the gamble they’re taking.
Understanding Speculation In Forex
As experienced and trusted online trading educators, the team here at Trade Room Plus helps new online traders learn, understand and execute the best trading strategies based on their goals - including those looking to try speculative forex trading. We can help you to find your feet with online trading and provide plenty of tips, advice and live demos to help you get the most from your online trading experience.
If you’re ready to find out more about speculation in forex, including what it is and how it’s different to investing then read on for expert insight that will get you speculating like a pro trader in no time.
What Does Speculation Actually Mean?
When you speculate, you form a theory of what you think will happen in a given situation without any proof your expected outcome will turn into reality. There is usually a high risk that the outcome will result in loss but the potential for reward outweighs this for those who enjoy speculating.
For example, when a trader speculates, they place trades based on what they think the market will do next but there are no guarantees their speculations will pan out. As a result, speculative trading simply refers to placing trades when there is a significant risk of loss, balanced with the expectation of profit.
The phrase 'speculate to accumulate’ was a phrase first coined in the mid 20th century and can be translated to mean, roll the dice, have a gamble or take a chance. All very apt sayings when it comes to online trading!
What Is Forex?
Forex stands for the Foreign Exchange Market which is a global marketplace for trading currencies against each other. Forex works by trading one currency for another with the intention of making a profit by actively speculating the direction the currency is likely to take in the future.
Currencies are sold in pairs and an estimated $5 trillion is exchanged every day. The forex market is open 24 hours a day, 5 days a week to banks, institutions and individual traders worldwide. Unlike other financial markets, there is no centralized marketplace for forex as currencies trade in whatever market is open at any given time including major financial markets such as London, New York, Hong Kong and Sydney to name a few.
Speculation And Forex
For traders engaging in speculative forex trading, it’s a risky business. When one of the currency pairs goes up, the other goes down and these price movements are affected by social, economic and political events such as inflation, interest rates, changes in GDP, import/export numbers or market stability. This means that forex traders must pay close attention to these variables in order to stand the best chance of making successful speculative trades.
Further your forex trading:
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How To Speculate In Forex Successfully?
As with all online trading, traders must know their markets inside out. Speculating seeks abnormally high returns from bets that can go one way or the other. As such, forex traders must be observant, conduct thorough analysis of their movement of their chosen currency pairs and remain disciplined to follow their trading strategy in times of heightened uncertainty.
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When the indicators outlined above are leaning towards higher profits, speculators believe the currency will increase in value in the future. If lower gains are predicted then speculators will cash in the currency and its value will decrease. Due to these patterns of forex trader activity, forex critics have concerns that currency speculation can interfere with a nation’s economy. Traditional investment vehicles such as stocks and bonds would in comparison be viewed as more advantages to a country’s growth due to the injection of capital.
Related Questions
What Is The Difference Between Investing and Speculating
Although both involve the buying and selling of securities, the main difference between investing and speculating in the world of online trading is the level of risk involved in the transactions.
Investors hope to enjoy income or profit from returns on their capital by taking on an average or below average amount of risk when buying and holding for at least a year. In comparison, speculative forex traders only hold for a short period of time before selling and will therefore move in and out of positions quickly meaning day traders are classic speculators.
Where Can I Find Out More About Speculation?
To find out more about speculation and how it can fit into your overall trading strategy, Trade Room plus is a great place to start for all of your trading education needs. Have a look at our live trade room and our membership options if you want to take courses, see live trading in action and receive our profitable trade signals.
Summary
We hope this article has given you an overview of speculation in forex and the key things to consider if you’re interested in speculative trading methods.
The key takeaway is that speculation in forex refers to the buying and selling of currencies with the intention of making a profit when a substantial risk of losing value exists too.
For speculative traders, although the risk of loss is high, it is more than offset by the potential for financial gain and when speculative investing involves the purchase of a foreign currency, it is known as currency speculation.
At Trade Room Plus we have been showing our customers how to trade Forex, Index and Crypto markets on spread bet and CFD broker platforms since 2013 and we offer a comprehensive but accessible way to learn how to trade forex, start day trading, understand when to enter and exit a trade and how to improve your profitability.