Speculation

Speculation refers to the act of purchasing and selling financial assets—such as equities, commodities, or foreign currencies—with the intent of earning quick profits from short-term market movements. Unlike long-term investing, which emphasizes gradual growth and stable returns, speculation involves greater exposure to market volatility and risk. Speculators often participate in high-risk markets, including derivatives, small-cap stocks, and over-the-counter (OTC) trades. Although speculation can generate substantial gains, it requires careful risk management and alignment with an investor’s financial goals.

Example: For example, a trader may buy shares in a new technology startup expecting rapid price appreciation based on market excitement. However, if prices decline unexpectedly, the same trade could lead to significant losses.