
Speculator
A speculator utilizes strategies and typically a shorter time frame in an attempt to outperform traditional longer-term investors. Speculators are sophisticated investors or traders who purchase assets for short periods of time and employ strategies in order to profit from changes in its price. 1:39 Speculators attempt to predict price changes and extract profit from the price moves in an asset. For example, individual traders can be speculators, if they purchase a financial instrument for short periods of time with intentions of profiting from its price changes. Prop shops or proprietary trading firms can also be considered speculators because they use leverage to purchase securities and make profits from changes in their price.

What is a Speculator
A speculator utilizes strategies and typically a shorter time frame in an attempt to outperform traditional longer-term investors. Speculators take on risk, especially with respect to anticipating future price movements, in the hope of making gains that are large enough to offset the risk.
Speculators that take on excessive risk typically don't last long. Speculators exert control over long-term risks by employing various strategies such as position sizing, stop loss orders, and monitoring the statistics of their trading performance. Speculators are typically sophisticated risk-taking individuals with expertise in the markets in which they are trading.


Basics of Speculators
Speculators attempt to predict price changes and extract profit from the price moves in an asset. They may utilize leverage to magnify returns (and losses), although this is a personal choice of the individual.
There are different types of speculators in a market. For example, individual traders can be speculators, if they purchase a financial instrument for short periods of time with intentions of profiting from its price changes. Market makers can also be considered speculators because they take the opposite position to market participants and profit from the difference in bid and ask spreads. Prop shops or proprietary trading firms can also be considered speculators because they use leverage to purchase securities and make profits from changes in their price.
Normally, speculators operate in a shorter time frame than a traditional investor.
For example, a person may call themself an investor if they buy 20 strong companies and plan to hold those stocks for at least 10 years, assuming the companies continue to perform well. A speculator, on the other hand, may use all their portfolio capital to buy five stocks, or several futures contracts, expecting them to rise over the next few days, weeks, or months. Speculators typically utilize trading strategies that tell them when to buy, when to sell (at a loss or profit), and how big of a position to take.
Principles Behind Speculation
Speculation sometimes gets confused with gambling. There is an important distinction, though. If a trader is using untested methods to trade, often based on hunches or feelings, it is highly likely they are gambling. If gambling, the trader is likely to lose over the long-run. Profitable speculation takes a lot of work, but with proper strategies, it is possible to gain a reliable edge in the marketplace.
Profitable speculators look for repeating patterns in the marketplace. They look for commonalities between many rising and falling prices, in an attempt to use that information to profit from future ups and downs in price. It is detailed work, and because prices are always moving and there are nearly infinite variables to consider, each speculator often develops their own unique way of trading.
Speculators' Impact on the Market
If a speculator believes that a particular asset is going to increase in value, they may choose to purchase as much of the asset as possible. This activity, based on the perceived increase in demand, drives up the price of the particular asset. If this activity is seen across the market as a positive sign, it may cause other traders to purchase the asset as well, further elevating the price. This can result in a speculative bubble, where the speculator activity has driven the price of an asset above its true value.
The same can be seen in reverse. If a speculator believes a downward trend is on the horizon, or that an asset is currently overpriced, they sell as much of the asset as possible while prices are higher. This act begins to lower the price of the asset. If other traders act similarly, the price will continue to fall until the activity in the market stabilizes.
In this way, even many investors become speculators from time to time. They get caught up in the frenzy of the big ups and down. While they may have initiated their position with the intention of being long-term investors, if they start to buy and sell solely because they think other people are buying or selling, they have entered the realm speculation — possibly even gambling, if they are unsure of what they are doing — as opposed to investing.
Related terms:
Continuation Pattern
A continuation pattern suggests that the price trend leading into a continuation pattern will continue, in the same direction, after the pattern completes. read more
Demand
Demand is an economic principle that describes consumer willingness to pay a price for a good or service. read more
Futures
Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price. read more
Investment
An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in value at some point in the future. read more
Investor
Any person who commits capital with the expectation of financial returns is an investor. A wide variety of investment vehicles exist including (but not limited to) stocks, bonds, commodities, mutual funds, exchange-traded funds, options, futures, foreign exchange, gold, silver, and real estate. read more
Leverage : What Is Financial Leverage?
Leverage results from using borrowed capital as a source of funding when investing to expand a firm's asset base and generate returns on risk capital. read more
Market Maker
Market makers compete for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. read more
Outperform
Outperform is an analyst's recommendation that a stock is expected to do better than the market return. Also known as "market outperform," "moderate buy" or "accumulate." read more
Position Sizing in Investment
Position sizing refers to the size of a position within a particular portfolio, or the dollar amount that an investor is going to trade. read more