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Speculative investment – is an investment, the sole purpose of which is making a profit from changes in the assets value (difference between buying and selling prices).

 

Speculative vs. Financial investment: similarities

Speculative investment assets are, as a rule, financial instruments such as currency pairs, bullions, CFDs, stocks, bonds, options. Real estate, equipment, land and other assets are extremely rare due to the low liquidity of speculation objects. Here the speculative investment is similar to financial, and some experts tend to define it precisely as a particular case of the financial investment.

 

Speculative vs. Financial investment: differences

Speculative investment does not involve the actual ownership of the asset, such as securities, dividends or participation in the management of the company issuing the shares. That’s why speculative investors often prefer the derivative financial instruments rather than the basic ones, for which transactions involve less time and material costs – commission fees on transactions with derivatives are much lower, and re-registration of property rights is usually not required.

Another specific feature of the speculative financial investment is the time horizon of transactions. Normally, the speculation is focused on generating quick profits and is made in short or medium term, while the transaction relating to the financial investment requires a longer period. Naturally, this difference is quite arbitrary; depending on the investor’s objectives and movements of the financial markets the speculative operations term can be significantly increased. 

 

Speculative investment is a good option for: 

  • those who want to avoid the inflationary losses and transfer their savings into growing assets just in time;
  • investors who are not interested in the real ownership of financial assets and are aimed at receiving the investment income as fast as possible;
  • those who are not psychologically ready to wait for the investment revenues for too long;
  • Hot-tempered people who want to devote their appetite for risk in a positive direction.

 

Advantages of speculative investment

  1. Simple transactions over the Internet without re-registration of ownership rights.
  2. Investments in instruments with high liquidity and a quick redistribution of capital.
  3. Prospect of high revenues thanks to financial instruments price volatility.
  4. Possibility of margin transactions using financial leverage (leverage) and receipt of high income by investing a minimum amount of own funds.
  5. Ability to use aggressive and therefore highly profitable strategies.

 

Disadvantages of speculative investment 

The last three advantages of speculative investment may under certain circumstances  simultaneously turn into its weaknesses. Aggressive investment strategies are associated with high risk, as the risk of volatility increases at times – that is, the loss of investment due to the sharp rise in the financial instrument rate. In addition, margin trading involves a high profits and losses up to the total loss of investments, subject to the asset price movement in an unfavorable direction for the investor.

Thus, the effective speculative investing requires more thorough analysis than other types of investment.

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