FX speculation or FX investments?
The FX market is home to both FX speculators and FX investors, and sometimes the line can be very blurry between the two. It is also very common for an individual to be both a speculator and a an investor. A very common development for hobby traders on retail FX trading platforms is to start out as a speculator and build a bankroll from a small deposit, and then shift some of that bankroll into longer-term investments as a way of mitigating risk and making the job of FX trading less labor intensive and time consuming.
When we talk about FX speculation, we mean very short-term trading. FX daytraders will monitor their positions vigilantly and try to make a profit even from small and short-lived movements. Swing trading is often hailed as an excellent way to quickly build up your bankroll.
An FX investor will be more interested in long term trends than short-lived swings. FX investors hold on to their positions for weeks, months and sometimes years. Some even go as far as obtaining actual physical bills of the currency they wish to invest in. FX investors will often study fundamentals and try to predict how political and economical changes will impact the exchange rates. Small dips here and there are not significant when a currency is following a long-term trend of appreciation.
Take broker advice with a grain of salt
Many trading platforms make money on each trade, regardless of whether the customer makes a profit on the trade or not. Also, the commission to the platform is normally not fixed but dependent on the customer’s total volume of trade. Because of this, the platform can make much more money on a costumer that deposits 1,000 Euro and makes a new trade every few minutes during an intense trading session than on a customer that deposits 2,000 Euro only to make a few purchases and then log out from the site and stay away for days or weeks.
What all this means is that many retail trading platforms have a lot to gain by advocating for speculation rather than longer-term investments. The same 1,000 Euro that you are shuffling back and forth to make a myriad of small short-term trades can be much more profitable for them than the 2,000 Euro that you deposited only to purchase 2,000 Euro worth of Swiss francs and then leave the platform for two months, hoping for the Swiss franc to remain in its upward climb against the Euro.