The word 'speculation' is derived
from the Latin word 'speculate' which means 'to see from a distance or take a
decision in anticipation of future happenings. However, in the share market, it
means dealing in securities keeping in view the present and future prices with
the object of making profits from the difference of the two prices. Emery of
USA has stated the meaning of speculation in the following words:
"Speculation consists of buying and selling commodities, or securities, or
other property, in the hope of a profit from anticipated changes of value"
Speculative transactions are
different from investment transactions. Graham, Dodd and Cottle have explained
the difference between speculation and investment as follows:
"Investment operation is one
which, upon thorough analysis, promises safety of principal and a satisfactory
return. Operations not meeting these requirements are speculation".
You can very well understand this
difference if you know the working of a stock exchange. The stock exchange
provides an arrangement for the marketing of listed securities which are also
called 'scrips'. The actual functioning of this market consists of buying and
selling of these scrips. The buyers and sellers undertake two types of operations;
one for investment and the other for speculation. Those who buy securities so
as to earn a regular income from the investment are called 'genuine investors'.
They get delivery of the scrips on payment of the price. Such transactions are
called investment transactions. In the second type of transactions, the object
is to deal in the difference of price. The buyers buy scrips with the object of
selling them in future at a profit, or sell now in the expectation of buying at
a lower price in future. They are known as speculators and their transactions
are known as speculative transactions.