What Does Speculation Mean?

The process of selecting investments with higher risk in order to profit from an anticipated price movement.

Investopedia explains Speculation Speculation should not be considered purely a form of gambling, as speculators do make an informed decision before choosing to acquire the additional risks. Additionally, speculation cannot be categorized as a traditional investment because the acquired risk is higher than average. More sophisticated investors will also use a hedging strategy in combination with their speculative investment in order to limit potential losses. Read more: http://www.investopedia.com/terms/s/speculation.asp#ixzz1VOZKjB4c
Deliberate assumption of above average (but analyzed, measured, and usually hedged) short-term risk of financial loss, in expectation of above average gain from an anticipated change in prices. Organized speculation (as conducted through commodity and stock exchanges) adds capital and liquidity to financial markets, and helps dampen wild fluctuations in prices in normal times. In times of speculative hysteria or economic/political crises, however, speculation exacerbates price swings and may swamp usual trading activity. In terms of degree of risk assumed, speculation (short-term acquisition of assets) falls between investment (long-term acquisition of assets for income and/or capital appreciation) and gambling (wagering on random outcomes without acquisition of assets).

In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.[1] Speculation typically involves the lending of money for the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return.[1] In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is commonly used to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured moneyincluding funds placed in the world's stock marketsis technically not investment, but speculation. Speculators may rely on an asset appreciating in price due to any of a number of factors that cannot be well enough understood by the speculator to make an investment-quality decision. Some such factors are shifting consumer tastes, fluctuating economic conditions, buyers' changing perceptions of the worth of a stock security, economic factors associated with market

timing, the factors associated with solely chart-based analysis, and the many influences over the short-term movement of securities. There are also some financial vehicles that are, by definition, speculation. For instance, trading commodity futures contracts, such as for oil and gold, is, by definition, speculation. Short selling is also, by definition, speculative. Financial speculation can involve the trade (buying, holding, selling) and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to attempt to profit from fluctuations in its price irrespective of its underlying value.

Investment vs. speculation

Identifying speculation can be best done by distinguishing it from investment. According to Ben Graham in Intelligent Investor, the prototypical defensive investor is "...one interested chiefly in safety plus freedom from bother." He admits, however, that "...some speculation is necessary and unavoidable, for in many common-stock situations, there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone."[3] Many long-term investors, even those who buy and hold for decades, may be classified as speculators, excepting only the rare few who are primarily motivated by income or safety of principal and not eventually selling at a profit.[citation needed] Speculating is the assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. 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.[4] There is nothing in the act of speculating or investing that suggests holding times have anything to do with the difference in the degree of risk separating speculation from investing. Gambling If you want cash within a snap, maybe gambling can help you with that. When one say gambling, it would usually connote casinos, lotteries and slot machines. And every time you gamble, there are only two things you can expect, it is either you win, or you lose. This has been popular because you only have to spend a small amount of money for stakes that are very high. For example, in lottery, the jackpot would amount to millions of dollars, but you can bet for just a couple of bucks. Speculation If one wants to increase his chances to profit one might try to speculate. Speculation is just like investment, you initially put in a capital expecting a profit in return. This is also defined as the act of placing funds on a financial vehicle with the intention of getting satisfactory returns over an amount of time. The stock market is a widely known rendezvous for speculators.

Difference between Gambling and Speculation Nowadays if you do not have money you have nothing, everything comes with a price. Thus, no wonder man is looking for a lot of ways, preferably easier ones, to earn it. Love for money has been stitched to man itself; it has been a part of the human being and the society since eternity. Gambling and Speculation are similar in the sense that they can help you profit in a short amount of time. However, one would need skills to become a good speculator. There are so many factors one would need to study and master to excel in this area. While on the other hand, gamblers prosper just because of plain luck. No one has proven how to master luck yet. Knowing the difference between gambling and speculation can give you a clearer view on which path would you want to take. There are people who believe they are born lucky and may think gambling is their thing. However there are some people who have a wider view of what is ahead and try to develop the skills to try and speculate.

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Difference Between Gambling and Investing

Investing is a good thing, gambling is a bad thing. I think it would be hard to argue with the claim that investing is, on the balance, a good thing. Investing is widely regarded as the engine that drives capitalism. It tends to put money in the hands of those with the most promising and productive uses for it, and drives the economy gradually upward Gambling, on the other hand, is not so clearly making a positive contribution. Gambling does tend to help local economies, but also usually brings with it well-documented unpleasant side effects In investing, the odds are in your favor; in gambling, the odds are against you. "An investment is simply a gamble in which you've managed to tilt the odds in your favor." But that position is too simplistic. There are plenty of investments where the odds are against you: futures, options, and commodities trading (where you get hurt on commissions and the bid/ask spread), frequent stock trading (for the same reason), and selling short (since the market goes up rather than down in the long run) There are additional problems with this attempted characterization of gambling as a losing bet and investing as a winning bet. It implies that a given activity switches from gambling to investing (or vice versa) as soon as the odds swing past the breakeven point. Gambling can be addictive and destructive, but investing can't. Compulsive gambling has been correctly identified as a problem, and organizations like Gamblers Anonymous are helping people cope with the problem. No similar problem is generally thought to exist

in investing. There is no Investors Anonymous, and no one talks about compulsive investors. But while there isn't yet widespread acknowledgement of investing addiction Gambling is entertainment, investing is business. The internet has enabled online brokerages and other financial web sites to revolutionize retail investing, which on the balance is a tremendous benefit to both individual investors and the economy in general. However, the widespread accessibility of cheap online trades has also attracted some people who enjoy betting and view online trading as a new form of entertainment. The major factors accelerating this trend are that gambling is strictly regulated and not ubiquitous, and that the odds are usually better in investing than in gambling. Investing is saving for specific goals, such as retirement, while gambling isn't. Many people regard investing as a planned strategy of wealth-building for specific future goals. And this is certainly true of some types of investing. But this is largely a by-product of having the odds in one's favor. If you have the edge (whether in blackjack or in equities), time and the laws of probability are a powerful combination. Gambling would work just as well as investing for financial event planning if gambling games were in your favor. Investors are risk-averse, while gamblers are risk-seekers. Risk-taking is intrinsic to both gambling and investing. There are a few investments that don't entail risk, such as fixed annuities and government bonds held to maturity, but even those have inflation risk. The major difference between the two groups seems to be the participant's relative willingness to accept risk. Investors tend to avoid risk unless adequately compensated for taking it, but gamblers don't Investing is a continuous process; gambling is an immediate event or series of events. This rule does seem to hold in most cases. Investing is a continuous process of deployment of capital in search of continually increasing net worth. As a result, delayed gratification is implied. Gambling is a specific act or series of acts, centered around immediate gratification. In this respect, day trading resembles gambling: the participant gets in, the price moves up or down, and he/she gets out, usually in a matter of minutes.