What Is a Speculator?

What Is a Speculator?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A speculator is a person who trades derivatives, commodities, bonds, equities, or currencies with a higher than average risk in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, in the hope of making quick, large gains. They are typically sophisticated, risk-taking investors with expertise in the markets in which they are trading, and they often use highly leveraged investments, such as futures and options.

Related Questions

1. How is a speculator different from an investor?

An investor is someone who purchases assets with the intention of holding them for a long-term period, hoping they’ll increase in value or generate profit. A speculator, on the other hand, strategically assumes risk in the markets with the hope of making a quick substantial profit from changes in asset prices.

2. What is speculative trading?

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Speculative trading is an act of buying and selling a financial instrument or commodity for the sole purpose of benefiting from fluctuations in its price. These trades are executed to make profits from the change in prices, not to use or take delivery of the actual asset.

3. Is speculation good or bad for the market?

Speculation can have both positive and negative effects on the market. On the positive side, it can infuse capital into the market, increase liquidity, and potentially steer prices toward their intrinsic value. On the downside, excessive speculation can create price bubbles and subsequent crashes that can lead to economic recessions.

4. What is an example of speculation?

A classic example of speculation is buying a property you believe is undervalued with the intention of selling it at a higher price later. Another example could be buying stocks of a company expected to do well in the future, with the aim of selling the shares later at a higher price.

5. How can one become a successful speculator?

Becoming a successful speculator usually requires sound knowledge of the market, careful analysis of the potential risks and returns, and a good understanding of leverage and how to use it. Patience and discipline are key traits, as well as the ability to react swiftly to market changes.