What it means
The word began in the world of gambling, where a punter is a person who bets money on the outcome of an event. From there, it spread into markets, where journalists and traders use it for someone who takes a position on a share or currency in the hope of a quick profit.
The difference between investing and punting lies in the method. An investor studies the earnings, assets and prospects of a business and expects to earn a return over several years, whereas a punter is betting that the price will move soon and often has no particular view about the underlying value.
Punting is not necessarily irrational. Short-term trading can be a legitimate activity when it is done with a clear plan, limited stakes and a realistic understanding of the odds, and traders who provide liquidity (the ability to buy or sell easily) help markets function.
The risks are significant, however. Transaction costs, taxes and the difficulty of timing moves mean that most people who trade frequently earn less than those who buy and hold, and leveraged products (those using borrowed money) can magnify losses beyond the amount first put in.
In everyday business slang, punter simply means a customer or member of the public. A retailer might say that the punters are staying away on a wet day, and a theatre manager may talk about getting the punters through the door.
The nuance is that the word can be mildly dismissive when applied to investors. Describing someone as a punter often implies that they lack expertise or are chasing luck, so it is a term to use carefully in professional settings.
In practice
Real-world examples.
Example
A retail trader buys shares in a small mining company after reading a rumour online, hoping to sell within the week. The price jumps 15% on the first day and falls back the next, and after trading fees the punter ends the week slightly behind. The trader notes that the commission on each trade took more than a third of his gross gain.
Example
A broker describes a group of day traders in a morning note as punters who pile into one share at the open. Such crowd behaviour often reverses as quickly as it starts. The note warns institutional clients that thin trading may lead to sharp swings in the price during the day.
Example
The manager of a seaside cafe tells her finance team that the punters have stayed away during a rainy fortnight. She uses the weather-hit sales as evidence in a request to the bank for a short-term overdraft limit increase. The bank manager accepts that the dip is seasonal after seeing three years of monthly sales.
Formula
Calculation
Expected value = (probability of gain x amount gained) - (probability of loss x amount lost)
Suppose a punter takes a speculative position with a 40% chance of gaining $2,000 and a 60% chance of losing $1,000. Expected value = (0.40 x 2,000) - (0.60 x 1,000) = 800 - 600 = +$200. Because the expected value is positive, the bet is favourable on paper. If trading costs of $250 apply every time, the net expected value becomes 200 - 250 = -$50, and the strategy loses money on average.Case study
Seen in the real world.
Kestrel Trading Club is an illustrative, fictional group of friends who each put $5,000 into a joint account to trade shares on tips. They bought quickly, sold quickly and tracked profits only for the trades that had worked.
After six months, the treasurer of the club, a retired accountant, added up all the trades including the fees. The club had made a gross profit of $1,800, but fees and taxes took $2,600, leaving a net loss of $800.
The group changed its rules, requiring a written reason for every purchase, a limit of 10% of the pot in any one share and a monthly review of results. They also agreed that nobody would invest money needed for rent or bills. The illustrative lesson is that a punter's results look very different once all costs are counted and every trade is included.
Watch out
Common mistakes.
- Counting only winning trades and ignoring losses and costs, which makes speculation look more profitable than it is.
- Using borrowed money for short-term bets, since losses can grow larger than the amount first invested.
- Confusing luck with skill after a few lucky wins, when a small number of trades says very little about ability. A long record, measured after costs, is the only reliable evidence of skill.
Questions
People also ask.
Is a punter the same as an investor?
Not usually, because an investor focuses on long-term value and cash flow, while a punter focuses on short-term price movements or outcomes.
Why is the term used for customers in Britain?
It is everyday slang, so a punter may be any member of the public paying for a ticket, meal or product.
Is it wrong to speculate?
No, speculation is legal and can be carried out sensibly, but the stake should be an amount that you can afford to lose. Many experienced traders cap the risk on any single trade at a small fraction of their capital.
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