Financial Basics: savings, investing, trading, speculating

Financial Basic

What is the difference between saving, investing, trading, and speculating? Sometimes people think they are saving, when they are really investing. Or they trade when they are trying to invest. Sometimes people simply don't know the difference between investing and trading so they just end up saving. And that's a real shame.

Wealth building comes from knowing your money strategy and working it wisely. The main difference between saving, investing, trading, and speculating is the degree of risk you take with your money. But in this era of volatility and in times of inflation, sometimes the conservative position puts money at greater risk. Let's look at these choices.

Savings begin when you put aside a part of your income and spend less than you earn. The foremost goal with savings is preservation of capital. Not lossing money is more important than growing your money. Typically, savers place their money in some secure, low-risk place. If you ask yourself how to save money, these are considered low-risk options: a dependable bank, cash, physical gold, a savings bond, or a certificate of deposit.

People save because they have a use for the money in the future. They could save for education or to buy a costly item, an expansive vacation, or a house, to pay for a wedding, or even just for a rainy day. Sometimes they save in order to put aside enough money to invest. Most experts recommend having a savings of 6-8 months of your living expenses.

Advantage: Cash allows you to move quickly when needed. You can invest when the right opportunity comes along. If you have a medical emergency or lose your job, you have money to tide you over.

Risk: You could lose cash. Banks may fail. You lose money as your savings typically do not keep up with inflation. You also lose the opportunity to earn income from investing the.

Investing puts your money to work for you in a deliberate, productive way. Most experts recommend at least a three-year investment timeframe. And the longer your money is invested the more it can work for you.

Most investments are into a business you think will perform well. When it comes to more specific examples of how to invest money, investors typically buy into reputable companies with established value. You may be a partner in a private company, or own shares in a public company. Investors want to see a return on their money. Returns come from growth in the value of the company or dividends.

Advantage: You can grow your wealth much faster with higher returns. Steadily compounding dividends can grow your money exponentially.

Risk: Markets fluctuate with politics, current events, news cycles, and business management. You can lose money on pullbacks. Not all companies prosper, some fail.

Trading is a kind of investing with a shorter timeline. Traders look at potential profits in fast moving markets. They may make many trades on an hourly, daily, or perhaps weekly basis.

Traders take advantage of the volatility and uncertainty of the financial markets. They seek to profit from fast rises and falls that happen from short term day to day activities. The markets are always moving. Up, down or sideways. They want to take advantage of every opportunity. Traders use a variety of charting tools and analyses to predict where the market is going and when a variety of charting tools and analyses to predict where the market is going and when the trend will change.

While this kind of trading is considered speculative, skilled traders manage their trades so the winning trades outnumber the losing trades. They accept losses as a part of the nature of their trading, but work to minimize the losing trades and maximize the winning ones.

Advantages of Forex auto trading

1. While past performance is no guarantee of future results, well-researched trading based on fundamentals and not emotion has produced stable returns you are not likely to see from other kinds of investments. Check out PaxForex Popular Investors page where you'll find plenty of skilled traders who you can chat with or whose trades you can copy.
2. Emotions can be kept in check– With an automated Forex trading system orders will be executed automatically provided a number of requirements have been met. And unlike a human, an autotrading system won’t hesitate or question the decision. It can be a useful tool for Forex traders who are nervous about placing an order,including those who have a tendency to buy and sell at every imaginable opening.
3. Rules of trading can easily be backtested – Backtesting involves applying trading rules to historical market data, in order to evaluate their viability. A computer program can’t make any guesses about what it has to do. It is imperative it is told exactly what to do in every perceivable scenario. The rules need to be very precise and they can be tested on historical data before any real money is risked in a trade. Following very careful evaluation the trading idea can then be fine tuned, and the system’s expectancy can be determined.
4. Discipline can be maintained – Even in a volatile market, the rules of an auto trading system will always stay the same. Emotional factors, such as fear of losing or the desire to squeeze as much profit as possible, are removed. Autotrading ensures discipline is preserved as the plan will be followed to the letter.
5. Consistency – It can be very difficult to maintain any level of consistency when trading Forex, and it takes a very disciplined trader to overcome the problem. Especially if there have been two or three losses in a row. There is no such thing as a 100% successful trading plan so there is always going to be a loss, which can be psychologically traumatizing. After a losing streak it can be very tempting to skip the next trade, and if that trade was a potential winner the expectancy of the trading plan will be destroyed.
6. Order entry speed is greatly improved – A computer is far quicker to respond to changing market conditions than a human, and generate an order immediately the criteria are met. Those vital few seconds could make a very big difference to the outcome of the trade. Forex trading can move at lightning speed and it can be rather demoralizing to miss out on a trade because the human brain and fingers didn’t move quickly enough.
7. Trading can be diversified – With an automated trading system a trader can trade a number of accounts, each with a different strategy, if that is what they want to do. This allows risk to spread over a variety of instruments as well as create a hedge against losing positions. A computer is much more efficient as this form of multitasking than a human, and can execute orders in milliseconds, as well as scour a range of markets for trading opportunities and monitor a number of different trades.

Risk: You must be able to accept losses in your account and have the self-control to keep your emotions in check as you trade. All online forex trading involves few risk. Only risk capital you're prepared to lose and past performance does not guarantee future forex results.

Speculating is high risk behavior. Here people hope for big gains but also take on considerable risk. The trade might be called 'a long shot/. Typically, it's very difficult to assess the outcome as to whether it will be in your favor or not. Speculators require a keen business sense, strict safeguards and a deep understanding of the market or they will soon be out of business. Investors may speculate with money they can afford to lose.

Advantage: possibly fast rewards.

Risk: Losing all capital plus MUCH more.

You should now be able to see both sides of the Forex robots and we’ll end by saying that there is a whole lot of fun and enjoyment to be had from Forex trading with profitably forex robots Spy- fx.