Investors may also indulge in speculative investment. It is not as though that all investments are speculative. When an investor makes an investment on financial assets or financial vehicles, the investor expects to make an earning in the future when these are sold. What makes the investment speculative is when the investor invests without having made an assessment of the financial assets in which the investor is investing. It may be that the asset carries with it a high risk and yet the investor invests. The risk could be so great that there could be the possibility of even losing the sum invested also. When investment is made despite all these risks, then they are speculative.
Expectation that the price of the asset will increase in the future is why the speculator invests. Economic, environmental, social and political factors also can influence the price. Even rumors cause the price to fluctuate. The factors that led to the fluctuation may not even be directly connected to the asset. For instance, the prospects of a government falling may cause market fluctuation even before anything has happened to the government. Investment in gold and oil by its very nature are speculative. Sometimes, investors buy an asset with the intention of short selling, the investment is then speculative. Speculative investment is when investors hold, buy, sell and short sell stocks, bonds, commodities, currencies, derivatives, real estate, collectibles and other valuable financial assets with the sole idea of making profits from the fluctuations in price rather than its real value.
Currency trading has emerged as an important and rapidly expanding global economic activity. This buying and selling of currencies are both for investment and speculation. Speculative investment is high in foreign exchange market or forex market in short. Banks, governments, financial institutions and brokers are the key players in the market. Called Forex derivatives as their price is derived from exchange rates between any two currency pair.
The way you can distinguish an investment from speculation is by the holding times. The speculator’s holding time is typically short. Of course, there is an element of speculation in all investments but it is not the main intention of investment.
Forex is a difficult business. So, anybody who wants to venture in it, should know every single detail about it before he/she decides to do so.