The Difference Between Switching and Speculative Trading

The Difference Between Switching and Speculative Trading. Written on August 29, 2018

I have repeatedly reminded everyone not to trade after buying, but everyone needs to understand the difference between switching and speculative trading.

The purpose of switching:

1. Rebalancing the investment portfolio.

2. For tax reasons, such as converting an IRA to a Roth IRA or obtaining the tax-free amount for long-term investments.

3. After selling, obtaining cash for other uses.

The purpose of speculative trading: hoping to buy low and sell high, or sell high and buy low, in a short period of time, in order to earn the price difference between buying and selling.

Time gap for switching: when switching, you usually buy immediately after selling. Because it is a switch, you must first sell and then move into another target as a kind of portfolio adjustment. After buying, you usually hold for more than one year, or even longer. We usually follow the principle of never selling, unless there is another need to switch.

Time gap for speculative trading: usually shorter than one year, even as short as a few days, one or two hours, or a few minutes. The point is that the purpose is to earn the price difference through frequent trading.

For example:

Switching: sell part of A and immediately buy part of B. This is done only when needed, not for the purpose of earning a price difference.

Speculative trading: feeling that the stock price is high and selling it, expecting it to fall and then buying it back. Or feeling that the price is low, buying it, and expecting to sell after it rises for a profit within a few days or a very short time. The point is frequent trading.