speculation

An idea which is a speculation is not sufficiently well-developed or supported by evidence to constitute a theory.

Please use the word "speculation" rather than "theory" when referring to such. The word "theory" has already been disparaged enough by bozos such as creationists.

In financial and commodities markets, speculation is when derivative instruments such as options or futures are purchased or sold, without holding a position in the underlying instrument.

Speculation is inherently risky, since it is essentially betting on the future price of an instrument that the speculator does not own.

See also hedging.

Speculation is the art of trying to make a profit for yourself or to avert (or lessen) an impending loss. Just about everyone (except perhaps monks who have pledged their lives to a monastery) speculates, in some form or other, at some point in their lives.

Ever bought several prepaid bus tickets because you knew that the government was going to raise bus fares? Ever stockpiled food before the flood season? Bought property with the intention to sell for a profit? Bought any kind of collectible (coins, stamps, phonecards, etc.) with the intention of possibly selling it later?

Speculators are not limited to the financial markets. Not by a long shot.

Having said that, you are also allowed to speculate in the futures or commodities markets with a position in the underlying instrument. For example, you could engineer a short squeeze by buying up and taking delivery of the commodity that you wish to run the price up of - you need deep pockets, somewhere to store the stuff and a world deficit of the thing in question.

---

Speculation is risky, yes, but sometimes it is riskier not to speculate.

---

Another common misconception is that speculators are the cause of financial crashes. This is perhaps the biggest misconception the general public has about the financial world today. If a currency collapses after a concerted attack by speculators, it is by no means the speculators' fault. The underlying weaknesses were, no doubt, cause by years of monetary mismanagement by the central bank of the country.

Speculators perform a very useful function in the market - they assume risk. Their mere presence and willingness to trade reduces the bid-ask spread, increases the number of trades (thereby providing liquidity) and makes the market run more smoothly.

Spec`u*la"tion (?), n. [L. speculatio a spying out, observation: cf. F. sp'eculation.]

1.

The act of speculating.

Specifically: --

(a)

Examination by the eye; view

. [Obs.]

(b)

Mental view of anything in its various aspects and relations; contemplation; intellectual examination

.

Thenceforth to speculations high or deep I turned my thoughts. Milton.

(c) Philos.

The act or process of reasoning a priori from premises given or assumed

.

(d) Com.

The act or practice of buying land, goods, shares, etc., in expectation of selling at a higher price, or of selling with the expectation of repurchasing at a lower price; a trading on anticipated fluctuations in price, as distinguished from trading in which the profit expected is the difference between the retail and wholesale prices, or the difference of price in different markets.

<-- buying long is considered speculation only when the time of holding the object is short. Longer-term trading (> 1 year) is considered investment. -->

Sudden fortunes, indeed, are sometimes made in such places, by what is called the trade of speculation. A. Smith.

Speculation, while confined within moderate limits, is the agent for equalizing supply and demand, and rendering the fluctuations of price less sudden and abrupt than they would otherwise be. F. A. Walker.

(e)

Any business venture in involving unusual risks, with a chance for large profits

.

2.

A conclusion to which the mind comes by speculating; mere theory; view; notion; conjecture.

From him Socrates derived the principles of morality, and most part of his natural speculations. Sir W. temple.

To his speculations on these subjects he gave the lofty name of the "Oracles of Reason." Macaulay.

3.

Power of sight.

[Obs.]

Thou hast no speculation in those eyes. Shak.

4.

A game at cards in which the players buy from one another trumps or whole hands, upon a chance of getting the highest trump dealt, which entitles the holder to the pool of stakes.

 

© Webster 1913.