The term of speculation refers to the financial operations of buying shares or any type of product with the idea of selling them later once the price has changed, and in order to make a profit.
Speculating serves to indirectly regulate the market and to create a stock of products in the event of a shortage. For example, in one country a large wheat crop has been harvested, which will lead to lower prices and increased consumption. This would lead to a rapid decrease in product stocks. The speculators then buy at a low price, to ensure a stock that will later sell at a higher price and that the population has the product constantly. Although the price rises with speculation, if that purchase had not taken place, the price would be exorbitant, since there would be very few reserves of the product.
Types of speculation
Speculation can be of two types:
- On the rise: you buy one asset or a product to be sold in the future at a price supposedly higher than the purchase price. This type of speculation is considered positive as it encourages investors to take positions and creates a sense of security in the market.
- On the downside: in this case, the investor sells a product or an asset that he considers overvalued and then buys it in the future at a lower price. The profit here is the difference between the selling price and the buying price. This type of speculation is the most controversial and generates a feeling of insecurity in the markets.
Effects of speculation
Investors contribute, not only to regulating the mercado, but for that regulation to materialize. If large investors speculate higher, in general, all invest higher, thus producing the effect that is desired with speculation.