Question

Investment and Speculation

• What do you think is the difference between investment and speculation?
• Some claim that the recent record-high oil prices are due to the speculations in the oil futures market. Do you think the investments in the futures markets made the market more volatile?
• Is the speculation a bad thing? Be brief.

Answer 1

Difference:

Investment is a calculated risk taken by an individual while taking a project. Whereas speculation is a high risk taken project irrespective of its outcome.

Investment is where the future profit or loss are studied and analysed and the least loss making project is selected and thus it is not taken just by chance, but in speculation the results are unknown and it depends on chances and there are equal chances of making profit and losses.

Investment are made to earn returns whereas speculation are done to earn huge profits.

Investment are done for longer period of time and return but speculation are done for short period quick profits.

Investors usually takes there own money for investment but speculators use borrowed money for speculation.

Market volatility:

Commodity trading do make the market volatile. Because due to investment in future commodities, the market becomes very risky. If the price of the commodity goes high, the buyer of the contract makes as he gets money at the lower decided price and can sell at the current high rate and if the price goes down, then the seller makes a profit by selling at the higher rate. In either of the cases the market price is affected and so it keeps fluctuating.

Speculation:

Speculation is not a good thing. But It is not illegal. It may cause fluctuations on the market due to its nature but it sometimes is also helpful for the market. It sometimes do help in future markets to keep the price at the required range and sometimes it leads to heavy fluctuations. So as long as it's not very excessive, its not a bad thing too.