Financial Speculations has its uses but it can also be dangerous

12 months ago

A lot of people go to the market with different intentions. Some to buy, others to sell. There's always an intention leading to different results. Based on the move of each individual, the market either favors or disfavors him.

When there's a huge potential for making a lot of gains from certain movements in the market, people tend to flock to these portfolios. They might dump quite a good amount of money betting on the future of a currency, token, or any other commodity.

Sometimes, this move can be very risky in the sense that it's almost easy for such an investor to lose his money.

But something ultimately prompts his movements and trading results.

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In the financial world, this act is termed speculation. And it's often associated with the act of buying into securities or portfolio that has a high risk of losing value but also has the potential to bring tremendous gains if the market moves in the investor's predicted direction and favor.

Investopedia says, there wouldn't ever be Speculations if there was no prospect of making a profit. This is because the market wouldn't offer any motivation to engage in such financial adventures.

As it stands, it's difficult for beginning investors to determine whether a certain security making waves in the market are based on speculations or long-term market exposure. This is why everyone regardless of their levels in the market is expected to do their due diligence before pumping the bags hoping for a breakthrough.

Day traders can engage in speculations, sometimes they win, sometimes they don't. But some have the discipline to stick to their entry/exit strategy regardless of how the market is doing. The probability of always having a good return at the end of the week or month is often seen in their summary and their income.

However, investors who are looking to engage in long-term hodling experience and outlook will have to tread carefully when it comes to purchasing units and units of securities. Engaging in speculations for these might be risky as they are not cut out for the slight or sudden turn of events in the market. Maybe, some of them are, who mostly chase the speculative assets and bubbles to make quick gains that could be directed to other assets with a long-term outlook. These folks should be dedicating time to do their research properly.

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Whether it's Forex, cryptocurrency, or general commodities, an investor must understand the nature of the assets they are investing in. They should differentiate speculative assets from non-speculative ones. And some of them are mostly without strength or value-oriented and are often without a sustainable business model.

Those who engage in speculative investment must also learn how to limit their losses in case the market turns against them. According to Investopedia, if one is an experienced investor, and wants to dabble in speculative stocks, it's advisable that they;

Look for companies that have good management teams, strong balance sheets, and excellent long-term business prospects. And they should be sure to use risk management techniques to avoid sharp declines. Speculative Stock: Definition, Uses, Sector Examples

If you want to differentiate between a speculator and an investor, all you have to do is figure out if they are trading in the market using the basis of fundamentals analysis or if they putting money into a portfolio that has a huge chance of failing which is akin to gambling.

Therefore to be deemed an investor, you must learn to use reasonable judgment to trade securities. And this should be done after you have done your due diligence and discovered those portfolios has a good chance of succeeding. Instead of moving with the waves in the market or mere media speculations.

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