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What is Speculation?

 , November 17, 2015 updated on August 16, 2017
Speculation is a financial position or strategy that attempts to make money from a zero-sum game that produces little or no actual economic value. In most cases, speculation is little more than gambling in that the position is just as likely to fail as succeed in the long run. Since a zero-sum game produces no actual value, a speculator needs to have an information advantage over other market participants in order to achieve sustainable gains.
Speculation is widely regarded as having negative effects. When a speculator wins they may enjoy the returns. However, when they lose they often can't repay their debts resulting in costs to banks, governments or investors. In many cases, speculative positions are highly leveraged and result in increased selling pressure in the event of a market crash.
Overview: Speculation
TypeEconomics
Definition (1)A financial strategy that produces no value.
Definition (2)Focusing on price movements as opposed to value creation.
EffectSpeculation can have social and economic costs, particularly if financial intermediaries direct money to speculation rather than loans to businesses that produce value.
Related ConceptsInformation Asymmetry

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