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What is Speculation?

 , updated on July 05, 2023
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 a guess at future prices. 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
Type
Economics
Definition (1)
A financial strategy that produces no value.
Definition (2)
Focusing on price movements as opposed to value creation.
Effect
Speculation can have social and economic costs, particularly if financial intermediaries direct money to speculation rather than loans to businesses that produce value.
Related Concepts
Information Asymmetry

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