Forex Investing or Speculating

by Stephan Smith on May 29, 2011

When I first started trading currencies back in 2010, I constantly read articles, watched news videos and listened to radio broadcasts online and offline referring to Forex trading as speculating and not investing. Deep down, I always had a problem with that. Why isn’t the Currency Market referred to as investing like the Stock Market, Bond Market or the Commodities Market?

What makes the Currency Market different? I honestly don’t see a difference. I am going to present my case as to why I think the currency trading should be considered an investment activity if the traders in the Stock Market, Bond Market and the Commodities Market are also considered and openly called an investment activity.

What’s the Big Deal?

You may be thinking to yourself, what’s the big deal? Why does it matter if Forex trading is considered and called a speculative activity and trading stocks, bonds and commodities is considered and called investing. It’s a big deal because I’ve personally noticed the news media around the world associate speculating and speculators with the cause of some major problems in the world. Speculating has a somewhat negative connotation to it because of what has been said about it.

Have you ever read or heard news stories that report the reason why oil prices, gold prices or food prices are elevated is because of speculators? I have. Speculators can be viewed negatively because they are usually blamed for elevated prices. You never (or rarely) hear a negative story about investing or investors. But you can hear negative stories about speculating and speculators.

What’s the Difference Between Speculating and Investing?

When I first noticed that Forex trading was being associated with speculating and not investing, I wanted to know what the heck speculating was? How was it different from investing? Why wasn’t the other markets hit with the speculating word but the Currency Market was. That’s when I decided to check using a popular online dictionary, the Merriam Webster dictionary. According to Merriam Webster, speculating is defined…

2: to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations.

- Merriam Webster (source): the most appropriate definition

Amazing. The definition of ‘speculating’ applies to all markets. When stock traders, bond traders, commodity traders and currency traders buy and sell assets, they assume risk in hopes of gaining profit. Stock traders profit from dividends paid by the companies whose shares of stock they hold as well as the fluctuating stock prices.

Bond traders profit from interest payments from the bonds they hold and may even earn more or less based on the fluctuating bond yields and prices. Commodity traders profit from the fluctuating prices of the very commodities they trade. Currency traders profit from the interest payments offered from the interest rate differences of various countries as well as the fluctuating currency pair trading prices.

You see? Every one that participates in any of the markets mentioned above is a speculator. But you never (or rarely) hear a stock market trader being called a stock market speculator. You would most likely find a stock market trader being called an investor.

Even real estate investors are speculators. Those who invest in real estate are just like currency traders because they speculate over prices and try to make a profit. They assume risk in hopes of making a return. Now let’s talk about investing. What is investing? According to Merriam Webster dictionary, investing is defined…

1: to commit (money) in order to earn a financial return.

-Merriam Webster (source): the most appropriate definition

Once again, Forex trading is investing by definition. As a Forex trader, I commit money in order to earn a financial return. So do stock traders, bond traders and commodity traders. Participants in these markets are all investors and speculators. I wonder why I don’t hear the news media or others call Warren Buffet a great speculator? By definition he is a speculator and an investor just like any other person that participates in any of these markets. But he isn’t called a speculator openly. Why? My guess is because speculating has negative connotations. In all honesty, there is nothing wrong with speculating. Nothing at all. But because the news outlets have given speculating a negative spin, speculating may be viewed negatively.

Forex Trading is Investing and a Speculative Activity

Forex traders are investors and speculators . They invest their money by purchasing currencies that will grant them positive returns and selling currencies that will grant them negative or less positive returns.

All I ask is that if stock traders, bond traders, commodity traders and even those who deal with real estate are called investors, then currency traders should be called investors. If stock traders, bond traders, commodity traders and those who deal with real estate are called speculators, than currency traders should be called speculators.

Let there be consistency and continuity. Thank you.



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