The Role of Stock Market Speculation: DEVELOPMENT -part 1-
DEVELOPMENT
The term speculation is known as the practice of buying at low prices with the intention of selling later at a higher price. Speculation has always been criticized in the popular language and political discourse, such as to make easy money at the gaming and gambling, also has been made responsible, especially when linked to hoarding, to produce higher prices and thereby harm consumers.
In fact, however, speculation is normal business practice that makes almost everyone in one way or another and serves to indirectly regulate the market, favoring both the profiteers and consumers.
If in a particular country, for example, you get a major crop of wheat, the price will tend to fall and consumption will increase, causing a rapid decline in stocks of the grain, to buy low price to resell later, speculators will create a stock or the existence of the product which you can then supply the market when the initial disappear over time.
The price will undoubtedly rise, but there will be availability of wheat and in any case the price will be lower than if there was anyone who is devoted to speculation. Thus, the speculation will be a spontaneous mechanism for regulating prices.
The speculator takes risks as any investor who intervenes in the market with their money buying goods resulting increase in price, but without ever being able to have certainty about it. The failure to understand the economic sense of speculation, coupled with the trend of economic interventionism of the past decades, led many governments to a system of controlled prices, which naturally led to serious distortions in resource allocation.
John Maynard Keynes reserved the “term speculation to predict the activity of market psychology and the word business, or entrepreneurship, the task of predicting the likely performance of the property for as long lasting, he felt that in any way it really dominate the speculation about the company. However, as you improve the organization of investment markets, the risk of the predominance of speculation increases. ” Economic instruments implemented at that time prevented the excessive development of the investment markets.
The success of the speculative activity depends on several factors. One is the information, but it is also important assessment performed by the speculator from available information.
The probability of occurrence of an adjustment in interest rates affect exchange rates. Obviously, the actions of speculators also affect the market, being one of the determinants of demand. For example, in 1992 some speculators were selling huge profits pesetas, considering that the currency was overvalued. The pressure was such that the peseta was devalued three times that to the level considered appropriate speculators. Other currencies such as sterling and the Italian lira had to exit the exchange rate mechanism (ERM) of the European Monetary System (EMS).
credit to: Lic. Eyelin Bello Caballero, MSc. Yaicel Rangel Díaz and MSc.Eimyn Rizo Lorenzo
Source: www.gestiopolis.com/finanzas-contaduria/especulaciones-en-los-mercados-financieros.htm
image source: www.greekshares.com/uploads/image/speculator_cartoon.gif