Updated on March 12, 2023
In stock markets, high-risk trades that one enters into with the hope of making a profit are known as speculative trades and a person or institution engaged in speculative trades is known as a speculator. Speculators place short term bets on securities, which have potential of generating high returns, due to volatility in prices.
Who is a Speculator
Some characteristics of speculators are :
a) Speculator engages in trading activity which is high-risk and high-return where the prospect of gain is high and so is the chance of capital wipeout
b) Speculators look at the price movements of an asset for gains rather than its fundamentals
c) Futures and options are examples of speculative trading as traders try to profit from future price movement and have short maturity period
d) Speculators trade in currencies, commodities, oil, gold etc.
What is the role of a speculator in stock markets?
Speculators play a crucial role in markets because:
1. They provide liquidity by buying and selling
2. They help in absorbing excess market risk