Are you a Trader or Speculator?

[yobo]

Definition of Trading: To exchange one thing for another.

Definition of Speculator: To engage in the buying or selling of a security with an element of risk on the chance of profit.

Which one are you?


I'll answer the question first. When I first got in this business I considered myself a trader but was really a speculator. I would buy and short stock with the hopes of it going in my direction. I did not receive anything for doing so unless I was able to close my position at a profit.

I eventually learned pair trading. While this helped to remove market direction, I was still "speculating" on the spread either widening or narrowing.

Than I learned about selling calls and puts against stock and cash reserves, and I finally crossed the chasm into real "trading." I began selling covered calls and puts, thus trading a right for someone to buy my stock or to sell me their stock at certain prices. And in exchange, I got cash or stock.

In learning to make markets, I finally became a trader crossing the chasm from being speculator. I no longer fear waking up the market will crash or zip higher. I simply sit back and collect cash for providing a service to speculators.

What a wonderful world. So what are you? A speculator or trader?

 

[sneakoner]

I'm a gambler

 

[cornix]

According to given definitions: a speculator.

But I don't find anything scary about that. Maybe I do something wrong?

 

[Laissez Faire]

According to your definitions I am a speculator.

But I should add that I`m not yet worthy of the title as I am still also a gambler.

I constantly work on closing the gap between gambler and speculator.

Currently, I will say that I`m 75% speculator/25% gambler.

 

[PushPull]

I used to be a gambler, then a speculator, and now I am simply a Profit Taker. I allow other people to give me their money. Really. I'm also a compulsive poster.

 

[Mercor]

Quote from yobo:

Definition of Trading: To exchange one thing for another.

Definition of Speculator: To engage in the buying or selling of a security with an element of risk on the chance of profit.

Aren’t these two definitions the same. The first one is inadequate.

Trading: just an exchange? If I trade you an Ipad for a new car, Was there a risk of loss involved?

 

[yobo]

They are not the same. Since you are exchanging an iPad for a new car you are getting something in return. If you bought an iPad with hopes of selling it at a higher price to buy a new car than you are speculating.

If I was stuck in a dessert with no water and with no Internet access but had a 1500 mile road to travel on to get back to civilization than that trade is great. But if I was stuck on an island, no way off and no road to go anywhere but I had Internet access and an iPad allowed me to communicate to get help than that would be a better trade. When you trade you always get something in return. When you speculate you hope to make a profit.

Make sense?

 

[illiquid]

I still don't see the distinction; by your standards, you seem to be putting 'trader' one notch above 'speculator'.

To me you sound like a trader (generic) that had no edge in directional trading, so failing that, discovered the wonderful world of premium selling where it's that much easier to pretend you have an edge. Make sense?

 

[mister_doodi]

Covered calls are not risk free.

 

[yobo]

No, I am not putting trader above speculator, albeit I would argue the trader takes on less risk than the speculator but obviously the traders short term reward will be less than the potential huge rewards a speculator will occasionally get. Both professions carry risk.

To the next poster, covered calls in and of themselves carry zero risk for the seller. But obviously covered calls do not protect you if the stock goes to zero. But it does reduce the risk...how much depends on how deep in the money.

Capping your upside with a covered call only reduces your profit potential, but it doesn't add any risk. In fact covered calls reduce risk or potential loss.