Speculation

The speculation is an human activity consisting in imagining, to anticipate the reactions and activities of others, as if we were in his place, and to carry a glance on our own activity, as if we were another. It is thus the setting out of mirror ( speculus ).

To distinguish from the Agiotage, which is the handling of the market

Use

Almost all the human activities are speculative:

  • the decision to undertake certain studies (because one hopes for of it for the remainder of his life a satisfaction or an income),
  • the decision to produce (because one hopes to be able to sell),
  • the decision to store (because one thinks that one will have more evil to get the good),
  • that of acquiring a financial credit or real which one fears (or) that it will be worth expensive later,
  • hopes the choice of a behavior for an important appointment (because one hopes for certain reactions of them),
  • the choice of a sales leaflet (because one hopes to touch itaudience),
  • the reflection (intellectual speculation, Thought speculative),
  • etc

According to various authors like Richard Dawkins, Geoffrey Miller, Ian Stewart and Jack Cohen, the possibility of being able at to put itself at the place of others was vital to survive and reproduce in prehistoric times, and would have survived best and leaves a many descent those which reached that point most correctly.

Field of the economic goods

In the economic domain, the speculation consists in taking today economic decisions on the basis of economic state future and hypothetical . It is a bearing monetary bet on the future trend of the economic prices of goods. If the operator obtains privileged information, one is not any more in the presence of one speculation but of a Délit of initiate.

Modes of economic or financial speculation

To speculate consists to buy or sell, generally in purse, a certain quantity of goods, a Financial credit, real estate or of collection, or a contract Dérivé:

  • in the hope which its price will evolve/move thereafter in order to get a monetary profit;
  • while agreeing the risk to lose money if the evolution is contrary with the hopes.

Certain financial instruments, such as the Contract in the long term (= with credit) or the financial option S (the standard more the current of operations known as “Dérivé be”) allow:

  • to speculate in large amounts with a weak nap at the beginning;
  • that in the direction as well of the rise as of the fall of the price, according to anticipations of the decision maker.

Economic sectors concerned

One can distinguish several sectors:

  • those where the operations carry as well on the active S themselves as on the Dérivé S
    • the financial Spéculation: credit and documents of title;
    • the monetary Speculation: exchanges and interest rate;
    • the Speculation on goods: in particular those with dimensions on produce exchanges;

  • those where the transactions quasi exclusively carry on the credits themselves

Interest practices financial speculation

The existence of speculators agreeing to take risks makes it possible other agents to cover their own risks by making the operation in opposite direction, thus transferring their risk to the speculators (operation of Couverture of risk), a little as for them an insurer would do it.

The Liquidité of the market is all the more important as treated volumes and the number of transactions are large. In this direction, the speculation is without question an essential activity. In its absence, activities of cover carried out by the " Hedgers" would be made more difficult and more expensive. The speculation is thus essential by the contribution of liquidity which it brings.

For example a European exporter of products towards the the United States of America fearing a fall, compared to the Euro, of the dollar, currency in which it will be paid will be able in the long term to sell dollars on the foreign exchange market to a speculator, which contrary buys in the long term while betting on a rise of the dollar.

Moreover, the speculators allow to reduce the distortions which can appear temporarily on the markets. When a arbitration is opened, these operators, whose objective is the financial profit, will benefit from it as long as there exists.

Psychological aspects

The speculation being a bet on the future and a taking risk (like besides the majority of the human activities), the psychological aspects are not absent. The recent studies of behavioral Finance aimed to count and clarify

  • the cognitive and emotional phenomena thus concerned,
  • and the anomalies (racings, panics…) that can create at certain times in the prices and outputs on the market (phenomena of bubble or Krach)

In fact, there is often alternation of excess and of corrections of excess, it is only on the average and the long run which one can say that the speculation rather plays a part of self-regulation of the market.

Interest and critical of the speculation at the macroeconomic level

The need for contractors for transferring certain risks enables them to make their decisions of management with more safety what contributes to general economic efficiency and supports the initiative.

The effects of the speculation on the prices is disputed more. Certain authors affirm that it has stabilizing effects, others think that it is destabilizing.

The monetarist Milton Friedman estimates that the speculators gain on the markets only if they buy when the prices are low (Consequently they make assemble the courses and contribute to their stability) and sell when the prices are with most (What cause a drop in the courses and plays a stabilizing part). The speculators can be mistaken and to act has hitch, but they cannot do it constantly if not they quickly would be ruined and évincés of the market. Only the speculators survive whose interventions are on average stabilizing, i.e. the advised speculators.

For the economist Nicholas Kaldor, creator inter alia " Magique" square; or " Diagram of Kaldor" , there exist two type of speculators: Professionals and amateurs. the professionals, of small number, who represent also the most important positions, act in a stabilizing way. The amateurs, they, much more and badly informed, intervene with delay while buying with highest and while selling with low. They act in a destabilizing way and are finally évincés of the market. Unfortunately they are quickly replaced by new amateurs. But Kaldor concludes that one should not grant too much importance to the amateurs, since the professionals remain those which dominate the market.

Possible drifts of the speculations on certain goods and credits

One often holds (and improperly) the term of speculation to the activities of pure Commerce, the resold good being the same one as that which was bought. For some, the only possibility of making a profit in this context appears scandalous, which returns the speculation often badly seen or badly included/understood.

That can however be the case, it then acts more Manipulation of market that of speculation, if the speculator contributes to create an artificial shortage of goods or physical credits of first need (Accaparement or, in technical language, “corner”), with the particular favor of circumstance (Guerre, Catastrophe, etc), and by exploiting an inequality of the starting positions (the speculator having the means of securing itself at the beginning of the crisis, whereas the other agents do not have these means, even if they know that they will have to face worse later).

See too

Simple: Speculation

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