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placing funds in a high-risk investment, such as an option or futures contract. Risk is measured by variability of outcome and the probability distribution of those outcomes. A speculative investment has predictable results, but over a wide range of possible outcomes and with high probabilities of the extremes occurring. Speculation is basically short-term trading with the hope of obtaining a higher profit in the form of capital gain but with greater risk. The potential loss on a speculative investment can be limited by employing a hedge .
assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. Speculation is a necessary and productive activity. It can be profitable over the long term when engaged in by professionals, who often limit their losses through the use of various hedging techniques and devices, including options trading, selling short , stop loss orders and transactions in futures contracts . The term speculation implies that a business or investment risk can be analyzed and measured, and its distinction from the term investment is one of degree of risk. It differs from gambling, which is based on random outcomes.See also venture capital
risk taking by buying securities in the hope of realizing a capital gain or profit. Speculators realize they are putting capital at risk and may experience a higher loss than ordinary investors who seek a reasonable return on investment and preservation of capital. In general, investment risk increases as the holding period lengthens. Many investors use the foreign exchange markets and financial futures to hedge, or offset, potential losses from interest rate swings. Traders who buy and sell in these markets for their own account expect to realize gains from short-term price action in the financial markets.
investment or other decision whose success depends on an event or change that is not certain to occur.
Example: Land speculation occurs when investors pay higher prices for land they hope will be developed or converted to a more intensive use in the near future.
purchase of any property or security with the expectation of obtaining a quick profit as a result of price change, possibly without adequate research. Compare with gambling, which is based on random chance; contrast with investment .
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.