The Role of Stock Market Speculation: DEVELOPMENT -part 8-
Speculation in the future market
When it exists or is planned to hold a strong position in cash and not adopted any coverage is also being speculated. Such action must be classified as passive or static speculation, unlike the previously stated, referring to speculation active or dynamic.
The high degree of financial leverage or “leverage effect” is achieved in the futures contract makes it especially attractive to the speculator participation in these markets, which is why those who perform dynamic speculative operations know that the important multiplier effect of capital gains will be very satisfying to provide correctly the trend of prices.
Precisely because of the high degree of leverage that include futures contracts and their symmetrical character developments regarding the generation of income, speculators should be aware that the same multiplier effect, but in reverse, occurs erroneously predict price trend, which is why precautionary measures should be taken in addition to the speculative operation.
Speculation is very positive for the proper functioning of the market, providing the same high degree of liquidity and stability, as well as greater range, flexibility and depth in the trading of contracts. Must be regarded as a speculator’s negotiating counterpart is, in many cases, someone who makes a hedge.
CONCLUSIONS
While speculation is classified as very positive for the proper functioning of the market, giving it greater degree of liquidity, stability, range, flexibility and depth, and allowing faster recovery of the balance, it is also true that this action is detrimental for the real economy, since the only thing that occurs is an increase of money in the financial economy, but at the time of this money goes to the real economy in the form of costs or benefits materialized, purchasing power is being usurped to the real economy, because the products and services of this economy can not be achieved within the financial economy.
The fact that this practice is not only possible but actually is legal in the world today, is just one of many failures of the current monetary system.
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: http://managingthedragon.com/wp-content/uploads/2009/06/futures-market-shanghai.jpg