Speculation facts for kids

Speculation usually involves more risks than investment.

Speculation has a special meaning when talking about money. The person who speculates is called a speculator. A speculator does not buy goods to own them, but to sell them later. The reason is that he wants to make a profit from the change in price.

One tries to buy the goods when they are cheap and to sell them when they are expensive. There is a good chance to profit as long as the market price of a good changes often in different directions.

Speculation includes the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable financial instrument. It is the opposite of buying because one wants to use them for daily life or to get income from them (as dividends or interest).

Speculation is one of the biggest market roles in western financial markets. The others are hedging, long term investing and arbitrage. Speculators do not plan to keep an asset for a long time.

Images for kids

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  1914 billboard criticizing speculation on land, which cites Henry George.

See also

In Spanish: Especulación (economía) para niños