What was speculation on the stock market

Log in or sign up to add this lesson to a Custom Course. Login or Sign up. While the stock market makes that possible, it is extremely - extremely - unlikely. But, if someone picks the right trades and speculates accurately, there's no telling what might happen!

The stock market and all its fluctuations are entirely based on the millions of transactions that occur between buyers and sellers each day. Each of these buyers and sellers have different reasons for their activity, but all, at least a little bit, are based in speculation. As it relates to the stock market, speculation is the anticipation of future price movement based on a belief the market has inaccurately priced the stock.

While all stock trading has some degree of speculation, speculative trades have an especially high impact within financial markets. This means that there is a lot of risk in the investment, perhaps so much that one could lose a significant amount of money, but, if the trade goes well, it could appreciate rapidly and make someone a lot of money in a relatively short amount of time. Most speculative trades involve new companies that may not have a history of profitability or positive cash flow, but that have a business plan or some other strategic advantage that entices market participants to buy shares of their stock.

For example, a newly established technology company may be seeking funding and turn to the equity financial markets. Because they aren't established, they wouldn't be listed on the New York Stock Exchange NYSE or NASDAQ. Instead, they would be published on what is referred to as 'pink slips'.

The pink slips, or 'penny stocks,' are very speculative. The high risk part of the speculative means that there is a very good chance that the investor may lose some, or all, of their money.

That is a x return! If you see or consider a trade opportunity like this and after your analysis it is clearly a 'lose it all or make a lot of money,' then you are likely looking at a speculative trade. A stock price can fall all the way to zero, although you'll see many stocks on the pink slips that still trade at a fraction of a cent.

These are the companies that are hanging on to their cash and liquid assets , or assets that can be easily converted to cash, for as long as they can, which is why they are listed so cheaply on the pink slips anyway. Unlike companies listed on the New York Stock Exchange or other mainstream exchanges, these speculative companies are generally not making a profit and paying earnings back out to investors or reinvesting in their own growth.

But, the other side of that risk - albeit still very unlikely - you might have your money sitting on next year's Google and hit a homerun. Those trades, however, are very speculative. They are completely based on the slim chance that those trades might turn very profitable. To summarize this lesson and bring it to life, let's make a friend.

So, he starts researching pink slip stocks he remembers learning about in school. On the pink slips, he finds a company with the ticker WXYZ.

PK all pink slip stocks end with '. Right now it is trading for. If that stock went from.

The company is an oil exploration company, so it's a high risk, high reward investment. He researches their business plan and financial statements and sees that they have three sites under leases and the capital to drill five more wells. The trades themselves are often referred to speculative trades.

While all stock transactions are somewhat speculative, smaller companies that are traded on the pink slips - an unregulated stock market exchange where most stocks trade for less than a dollar, and many for fractions of a penny. These are the companies that are hanging on to their cash and liquid assets , or assets that can be easily converted to cash, for as long as they can.

These transactions are the most speculative, as there is a high probability that a trader will lose all of their money, but still the possibility that they could see an incredible return. To unlock this lesson you must be a Study. Did you know… We have over 95 college courses that prepare you to earn credit by exam that is accepted by over 2, colleges and universities.

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Speculation - definition of speculation by The Free Dictionary

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You can share your Custom Course by copying and pasting the course URL. In every financial market, speculation plays a key role.

On some exchanges with cheap stocks, speculative trades are the primary trades happening. In this lesson, we'll discuss the role speculation plays in these financial markets. Speculative Trades Most speculative trades involve new companies that may not have a history of profitability or positive cash flow, but that have a business plan or some other strategic advantage that entices market participants to buy shares of their stock. Risk and Return Opportunity A stock price can fall all the way to zero, although you'll see many stocks on the pink slips that still trade at a fraction of a cent.

An Example To summarize this lesson and bring it to life, let's make a friend. Start a FREE trial No obligation, cancel anytime. Want to learn more? Select a subject to preview related courses: So, he does it. Well, he made a very speculative trade. Register for a free trial Are you a student or a teacher? I am a student I am a teacher. What is your educational goal? Unlock Your Education See for yourself why 10 million people use Study.

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Speculation

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