Chapter 1 · Introduction to Financial Markets
The six kinds of participant
Investor, trader, speculator, hedger, arbitrageur — and which one you actually are.
The same market contains people doing completely different things. They are not different personality types; they are different intentions, and confusing them is where most losses begin.
| Participant | What they are doing | Holding period |
|---|---|---|
| Investor | Buying a business, expecting it to earn | Years |
| Trader | Buying a price move, on a defined plan | Days to months |
| Speculator | Buying a price move, expecting a rise | Anything |
| Hedger | Reducing an existing risk, not seeking profit | As long as the risk lasts |
| Arbitrageur | Taking a risk-free gap between two prices | Seconds to days |
Investor and speculator
Graham's distinction, from Chapter 6 of the beginner course, is the important one: an investment operation promises safety of principal and an adequate return on analysis. Anything else is speculation.
Speculation is not a slur and it is not forbidden. The danger is not knowing which you are doing — buying on a story, watching it fall, and then deciding you are a long-term investor in it. That is a speculation being relabelled to avoid taking a loss.
Hedgers and arbitrageurs in Nepal
Both are limited here. Hedging usually needs derivatives, which NEPSE does not have. Arbitrage needs either two venues quoting the same instrument or a derivative priced off a spot — again, absent. In practice a Nepali retail participant is an investor, a trader, or a speculator.
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