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Let’s learn more about Speculation: Bullish Commodity, Buy Futures. Speculation is the deliberate assumption of above-average (but analyzed, measured, and usually hedged) short-term risk of financial loss, in expectation of above-average gain from an anticipated change in prices.
Organized speculation adds capital and liquidity to financial markets, and helps dampen wild fluctuations in prices in normal times. In times of speculative hysteria or economic/political crises, however, speculation intensifies price swings and may trigger usual trading activity.
- Typical Speculators:
- Brokerage houses
- Retail investors
- People involved in commodity spot trading
Speculation: Bullish Commodity, Buy Futures
A speculator believes that the price of a commodity, for example, gold will rise and trades based on his/her views. Gold trades for Rs. 15000 per 10 gms in the spot market and the speculator sees its price to rise in two-three months. The trader buys 10 kgs of gold at Rs. 1,50,00,000 and holds on to it. If his forecast is correct and gold starts trading at Rs. 16000 per 10 grams, the speculator has made a gain of Rs. 10,00,000 on an investment of Rs. 1,50,00,000 for a period of three months.
A similar strategy can also be used for bearish movements.
