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When you make a financial commitment because you believe something will happen in the market where you're trading that will provide a profit, you are acting as a speculator.
For example, you might invest in a bankrupt company because you expect that it will emerge from bankruptcy and its stock price will rise at some point in the future. Or you might purchase futures contracts or buy or sell options because you think the contracts might increase in value.
In contrast, hedgers buy futures and options to protect their financial interests. For example, a baker who buys a wheat futures contract in order to protect the cost of producing bread is hedging the risk that wheat prices will rise. She's willing to spend a certain amount to protect against a potentially larger loss.
speculatora dealer in markets characterized by rapidly changing prices (such as a COMMODITY MARKET, STOCK EXCHANGE, FUTURES MARKET or FOREIGN EXCHANGE MARKET) who buys and/or sells commodities or securities not because he trades in them but in the hope of making a short-term gain from movements in the prices of these commodities or securities. For example, in the stock exchange, a speculator may take a ‘bullish’ view that a particular share price will rise and gamble on this hunch by buying that share on short-term credit terms at the current price and reselling it at a higher price after a week or two, using the proceeds from the resale to pay the original seller. On the other hand, the speculator may take a ‘bearish’ view that a share price will fall and gamble on this hunch by arranging to sell these shares at the present price (even though he does not own any), using the proceeds from this sale to buy at a lower price the shares that he has promised to deliver a week or two later.
The activities of speculators within a market may be either stabilizing or destabilizing, depending on whether or not they take a collective view about future price movements. For example, if some stock exchange speculators feel that the price of a share is going to rise while other speculators feel that the price of the same share is going to fall, then the former would seek to buy the share, adding to demand for it, while the latter would seek to sell the share, adding to the supply of it, and their efforts would cancel each other out, having little net effect on the share price. However, if most speculators take the view that a share price will rise, then they will all seek to buy it and thus artificially add to the demand for it and force up its price; while if most speculators take the view that the share price will fall, they will all seek to sell it, artificially adding to its supply and forcing the price down.
Whether speculators reduce or accentuate fluctuations in share prices over time depends on whether their collective view about future prices parallels the underlying price changes or moves in opposition to them. For example, if a share price is rising, and speculators take a collective view that it will continue to rise, then they will seek to buy it in the hope of reselling at a higher price, and this buying will accelerate the upward share price movement. On the other hand, if a share price is rising, and speculators take a collective view that it will begin to fall in the immediate future, then they will seek to sell the share in the hope of buying it back later at a lower price, and this selling will slow down the upward share price movement.
Speculators operate in both SPOT MARKETS and futures markets and often make considerable use of OPTIONS in their dealings. For example, a speculator may purchase a share option that entitles him to buy a certain number of a company's shares at a predetermined price at some future date if he thinks that the share price will increase to more than the predetermined price plus the cost of the option, for then he can gain by exercising the option and immediately reselling the shares at the higher price. See also ARBITRAGE, HOT MONEY, STAG, TOBIN TAX.