Speculation

SPECULATION

Speculation means taking up the business risk in the hope of getting short term gain. Speculation essentially involves buying and selling activities with the expectation of getting profit from the price fluctuation. This can be explained with an example. If a spouse buys a stock for its dividend, she may be termed  as an investor. If she buy with the anticipation of  price rise in the near future and the hope of selling it at a gain price she would be termed as a speculator. The dividing line between speculation and investment is very thin because people bye stocks for dividends and capital appreciation .

The time factor involved in the speculation and investment. The  investor is interested in consistent good rate of return for a longer period. He is primarily concerned with the direct i.e. extremely high rate of return than the normal return in the short run. Speculation’s investment are made for short term.

The speculator is more interested in the market action and its price movement.

The investor constantly evaluates the worth of security whereas the speculator

Evaluates the price movement. He is not worried about the fundamental factors like his counterpart, the investor.

The investor would try to match the risk and return. The speculator would like to assume greater risk than the investors. Risk refers to the possibility of incurring loss in the financial transaction . The negative short term fluctuation affect the speculators in a worse manner than the investor. The risk factor involved in the investment is also limited. After studying the factors related with the concerned company’s stock, the investor buys in and risk exposure in limited. The investor likes to invest in securities where his principal world be safe