What is speculation?

Speculation is defined as dealings in securities with the object of making profit from the difference in prices. It leads to gain for someone and loss for another. Risk of loss is involved in speculation and it depends totally upon uncertain happenings of the future. The purpose of speculation is to gain from difference in prices and is based on foresight. Speculation being a rational activity, is based on reasoning.

The risk related to loss is assumed and anticipated in case of speculation. It is not a punishable act rather a recognized activity. Speculation helps in equalizing and normalizing price fluctuations, mobilizing capital and widening the market of the securities. Speculation is encouraged only because of stock exchange.