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What is Speculative Trading

25 Sep 2023


Many types of investments and trading can be categorized in the financial world based on their nature. For example, long-term trading has the nature of holding the investment for longer. Similarly, there's a type of trading called speculative trading. It is popular among high-risk traders for its high-risk and high-reward nature. This blog will teach you about speculation, speculative trading, and real-life examples.

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What is Speculative Trading?

The meaning of the word "speculation" is to make a guess. Speculative trading is about guessing a highly profitable trade. But in Speculative Trading, the highly profitable trade comes with high risks. The basic modus operandi of a speculative trade is to make a profit from price fluctuations. It means speculative trading is a short-term rather than a long-term holding strategy.

Moreover, speculative investments are made in multiple investment niches. It includes stocks, currency, intraday and even real estate.

Example of Speculative Trading or investment

Sometimes, it becomes difficult to distinguish between normal trade and speculative trade. So here are some examples of Speculative Trade in the stock market.

Let's say there's a trader trading intraday to make profits from short-term investments so that he will exit all his positions by the end of the day. The primary way to make a profit is through price fluctuations. So, it is an example of Speculative Trade as both fluctuation and short-term trade exist simultaneously. The trader may make a huge loss if he enters the trade at the wrong time and cannot profitably exit.

Similarly, in real estate, sometimes there's a high rise in property prices in an area. The reason for it can be the instant development, enhanced connectivity, or a big investment by a company. In such cases, a property dealer may buy many properties in that area by only paying the token money. So, he gets a fixed period to pay for the remaining amount.

Now, if he successfully sells the properties, he took a position in at the right time, he will make a handsome profit. However, if he fails to do so or the rates go down again for any reason, he will make a huge loss.

Final Words

Speculative trading is indeed a great way of making easy money. But, since there are chances of high risks, one should only take such trades based on their risk capacity. A speculative trade may not be restricted to professional traders only, but there's no doubt that a newbie should only enter such trades if he has proper knowledge about it. So, if you also want to earn money from trading, open your Demat Account with Motilal Oswal. Motilal Oswal has one of the fastest trading environments for you to feel ahead of others.


Related Articles: What is Risk Tolerance in Bond Market | A Guide to Contrarian Investing | Why You Should Consider Investing in Dividend Stocks


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