What Is a Punter?
A punter is a trader who hopes to make quick profits in the financial markets. It is another term for speculator, used mainly in the U.K. Punters typically know that they are taking wildly improbably bets in the market, but that could have extremely lucrative payoffs.
In Great Britain and Australia, it is also a general term for one who gambles, a bettor.
- A punter is a speculator who makes large bets on unlikely outcomes with the hopes of beating the odds for large payoffs.
- A punter will often place a trade on a whim, or with little to no research or due diligence.
- The term is mostly used in the U.K. and in Australia.
A punter's approach is to speculate rather than invest. Thus, punters aren't concerned with the fundamentals of an investment; instead, they attempt to make a quick profit by selling to somebody else at a higher price. Punters speculate in any market, but especially like options, futures and forex because of the leverage. Punters often make their trades with the understanding that the likelihood of coming out ahead is quite low, and often trades are made on the basis of gut feelings or herd mentality. Even though expectations are low for a winning trade, if they do pay off, the sum will be quite large.
By definition, a punter takes more risks than the typical trader or investor. However, where there is greater risk, there is the potential for greater return. Punters almost always use heavy amounts of leverage, which again makes the derivatives and forex markets attractive to them.
How Punters Operate
Punters, or speculators, attempt to predict price changes in more volatile sections of the markets, believing, or speculating, that a high profit will occur even if market indicators may suggest otherwise. Normally, speculators operate in a shorter time frame than a traditional trader. Short-term speculators are also known as stags.
In the stock market, a trader speculates if he or she believes that a company that has recently seen a dramatic downturn, such as a highly negative press event or even a bankruptcy, will make a quick recovery. The trader's subsequent investment in that company makes them a speculator.
The same is true in reverse. If a speculator believes a downward trend is on the horizon or that an asset is currently overpriced, he or she sells as much of the asset as possible while prices are higher. This act begins to lower the sale price of the asset. If other traders act similarly, the price will continue to fall, resulting of a burst of any speculative bubble that may be in play until the activity in the market stabilizes.
Foreign Exchange Market
The forex market is one of a punter's favorite places to operate. The forex market is the world's largest market, with an estimated $5 trillion per day changing hands. The market trades around the world 24 hours a day; positions can be taken and reversed in seconds, utilizing high-speed electronic trading platforms.
Speculation in the forex market can be hard to differentiate from hedging, which is when a company or financial institution buys or sells a currency to protect itself from market movements.
For example, a sale of foreign currency related to a bond purchase can be deemed either a hedge of the bond's value or speculation; this can be especially complicated to define if the currency position is bought and sold multiple times while the fund owns the bond.