Speculator
Candlefocus EditorSpeculators differ greatly from other investors and traders, such as fundamentalists and chartists, who take a long-term view of their investments and tend to buy and hold stocks for extended periods of time. Furthermore, speculators are generally more willing to assume greater levels of risk due to the shorter duration of their positions. Speculators are most often found trading in the stocks, futures and options markets.
The role of speculators in the market is both positive and negative. On one hand, because of the speed with which they are able to enter and exit positions, speculators help create greater liquidity and make markets more efficient. On the other hand, their very active trading can sometimes lead to a movement in asset prices becoming exaggerated, resulting in an increase past what could be considered reasonable. When this occurs, a “speculative bubble” forms, leading to a greater potential for losses due to an eventual market crash.
Speculators use various strategies and analysis methods in order to identify and act on profitable opportunities. These strategies usually involve derivatives like futures, options and derivatives, which increase the risk but at the same time give speculators a way to more aggressively approach the markets. Speculators make decisions based on their understanding of the present macroeconomic and microeconomic relationships, as well as their predictions for the future cost of the asset.
In conclusion, speculators play an important role in markets, as they are able to help provide the liquidity that is essential for growth. However, due to their ability to take on great amounts of risk, speculators may at times push the market into a speculative bubble that may eventually lead to a crash.