Producers and Investors: Two Different Approaches in the Financial Market

When entering the stock market, most people face the question: are you an investor or a speculator? These two concepts may seem similar but have fundamental differences in goals, time horizon, and risk approach. This article will help you understand the differences and find the most suitable method for yourself.

What Is a Speculator? Definition and Characteristics

A speculator (investor) is an individual or organization engaging in financial transactions with the goal of making profits from short-term price fluctuations. Unlike long-term investing, a speculator’s activity focuses on predicting price changes of an asset and executing trades to capitalize on these opportunities.

Main characteristics of a speculator:

Speculators usually do not care about the fundamental value of a company or asset. They focus solely on technical factors such as price charts, support/resistance levels, and market psychology. Instead of holding assets long-term, speculators execute quick trades, sometimes within a few days or even hours.

Their activities include trading stocks, commodities, currencies, futures contracts, and other derivatives. Speculators are willing to accept very high risks for the chance of earning significant profits in a short period.

Investing: An Approach That Is Simple but Effective

Investing involves putting money into an asset with the expectation of generating stable income streams and increasing value over time. An investor aims to hold assets for many years, often decades.

Investors care about fundamental factors such as profits, growth, return on equity (ROE), and industry outlook. They believe that if a company operates well, its stock price will naturally increase over time.

Comparing Speculators and Investors: A Detailed Comparison Table

Speculation vs Investment: Deep Differences

1. Time Frame and Nature

A speculator can enter and exit the market within hours or days. They seek short-term volatility that they can exploit. Conversely, an investor buys a blue-chip stock and holds it for ten years, believing the price will rise as the company develops.

An illustrative example: If a speculator sees that stock A is trending upward, they might buy in the morning and sell in the evening. An investor, however, buys stock A because they see the company’s strong business model, expecting the price to increase over the coming years.

2. Risks and Psychology

Speculators understand they might lose all their capital. They are willing to accept this risk due to the potential for high returns. However, the psychology of a speculator is often unstable—they can be influenced by emotions like greed or fear.

Investors approach the market more rationally. They have a long-term plan, unaffected by daily price swings. They believe that in the long run, the market tends to rise.

3. Channels and Tools

Speculators often use derivatives such as:

• CFD (Contract for Difference): Allows trading with high leverage (up to 1:200)
• Futures contracts: Betting on the price of commodities or indices
• Options: Profiting from price volatility without owning the underlying asset
• Short selling: Betting that prices will decline

Investors mainly buy stocks, bonds, or index funds directly. They can also invest in ETFs based on market capitalization or money market funds.

Are Stocks a Speculation or Investment?

The answer depends on how you trade. If you buy a blue-chip stock and hold it for 10 years, that’s investing. If you buy a startup stock based on good news and sell it after a week, that’s speculation.

Common speculative forms in the stock market:

Start-up stocks are very susceptible to speculation. These companies often have no revenue or profit, only a promising business model. If successful, their stock price can increase tenfold. If they fail, they can lose 90% of their value.

ETFs investing in blockchain technology, cannabis, or biotech sectors are also highly speculative. Until these companies become profitable, they remain speculative investments.

Mining stocks (mining stocks) of companies searching for minerals or energy are also risky. The company might “strike gold” or find nothing.

Forms of investment in the stock market:

Blue-chip stocks of large, established companies listed on stock exchanges for decades are good investments. Their prices may decline in a particular year but over the long term (5-10 years), they are unlikely to depreciate.

Government bonds from developed countries are extremely safe. They carry almost no risk despite low yields.

Market index ETFs are a good passive investment approach. You own the entire market, thus risk is diversified.

How to Measure Risk: Standard Deviation

In financial markets, risk is measured by the volatility of returns. The statistical tool used for this calculation is called standard deviation (sigma).

What does high standard deviation mean?

An asset with high standard deviation (sigma high) usually has high risk. For example, cryptocurrencies have an unusually high sigma, indicating their prices are very volatile. Assets with high sigma are often targeted by speculators.

Conversely, blue-chip stocks or government bonds have low sigma, suitable for investors.

The relationship between risk and return:

A golden rule in finance is: the higher the risk, the higher the expected return. Speculators are willing to accept high risks for the chance of large profits. Investors prefer moderate risk with stable returns.

How to Choose?

Assess your financial capacity:

If you have a stable income from your main job, you can allocate part of your funds for long-term investments in stocks or funds. If you have savings and want to challenge yourself, you can try speculation.

However, do not use all your savings for speculation. A suitable ratio is 80-90% for long-term investing and only 10-20% for speculation.

Learn and prepare knowledge:

Before engaging in speculation, understand the tools you use. Read books, attend courses, and start with demo accounts before using real money.

For investing, you also need basic knowledge of reading financial statements and fundamental analysis.

Manage your portfolio:

A good portfolio combines both investing and speculation. Most should be long-term investments, with a small portion for short-term speculation. This way, you can have stable income from investments while still having opportunities for high profits from speculation.

Conclusion

A speculator and an investor are two different types of market participants. There is no completely right or wrong way—only approaches that are suitable or not suitable for you.

The key to success is understanding who you are, how much money you have, how much you are willing to lose, and how much time you can dedicate. Then, choose a strategy that fits those characteristics.

Whether you choose speculation or investment, continuous market knowledge updates are essential. Read books, follow news, and learn from your mistakes. Patience and discipline will lead you to long-term success.