DEFINITION of Punter
A punter is a trader who hopes to make quick profits in the financial markets. It is really just another term for speculator.
In Great Britain and Australia, it is the term for one who gambles, a bettor.
BREAKING DOWN Punter
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.
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.
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
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.