Speculators - Meaning, Types, Speculative Transactions, Advantages and Limitations
1.
2. CONTENT
Meaning
Types of Speculators
Bull
Bear
Stag
Lame Duck
Types of Speculative Transactions
Advantages of Speculation
Limitations of Speculation
3. MEANING:
• The Speculators attempt to make money in
both rising and falling markets.
• Speculators buy and sell stocks, attempting to
anticipate price movements in order to profit.
• Speculators are not genuine investors, they
buy securities with a hope to sell them in
future at a profit.
• They are not interested in holding the
securities for longer period.
• They are interested only in price differentials.
4. TYPES OF SPECULATORS:
The Speculators are classified into four
categories such as
1. Bull
2. Bear
3. Stag and
4. Lame Duck
5. 1) Bull :
A bull is an optimistic speculator.
He expects a rise in the price of securities in which he
deals.
Therefore, he enters into purchase transactions with
view to sell them at a profit in the future.
If his expectation becomes a reality, he shall get the
price difference without actually taking delivery of the
securities.
6. 2)Bear
A bear is the pessimistic speculator who expects a
sharp fall in the prices of certain securities.
He enters into selling contracts in certain securities on
a future date.
If the price of the security falls as he shall get the
price difference.
7. 3)Stag:
A stag is considered as a cautious investor when
compared to the bulls or bears.
He is a speculator who simply applies for fresh shares
in new companies with the sole object of selling them
at a premium or profit as soon as he gets the shares
allotted.
8. 4)Lame Duck:
When a bear is unable to meet his commitment
immediately, he is said to be struggling like a lame
duck.
9. TYPES OF SPECULATIVE
TRANSACTIONS:
Option dealings
Margin Trading
Arbitrage
Wash Sales
Blank Transfer
Carry over (or) Budla Transactions
Cornering
Rigging the Market
10. 1)Option Dealings:
Option dealing is an arrangement of right to
buy or sell a certain number of specified
securities at a predetermined price within a
prescribed time.
Types:
1)Call,
2)Put and
3)Call and Put.
11. 2)Margin Trading:
Margin Trading is a system of purchasing securities
with funds borrowed from brokers.
3)Arbitrage:
It is undertaken to make profit out of the differences in
prices of security in two different markets.
The speculator buys the security in one market where
its price is cheaper and sells it in another market
where its price is high.
12. 4)Wash sales:
Under this method, the speculator sells his
securities and then repurchases the same through
a broker at a higher prices.
No transactions takes place in the wash sales.
5)Blank Transfer:
Blank transfer is the routine method of transferring the
securities from one person to another.
That means, a method of transferring without
mentioning the name of the transferee in the transfer
deed.
13. 6)Carry Over (or) Budla
Transactions:
In case of forward delivery contracts, if both the
parties agree, the contract can be settled in the next
statement date(probably in the next month or
fortnight). Such postponement is called “Carry Over
(or) Budla”.
7)Cornering:
A Cornering is the condition of the market in which an
individual or a group of individuals holds almost the
entire supplier of a particular security.
14. 8) Rigging the Market:
Rigging means artificially forcing up the
market price of a particular security.
The Bull speculators generally carry on this
activity.
When the price rise, they will sell the
securities and make the profit.
Rigging is another unhealthy practice,
which disturbs the free interplay of demand
and supply.
15. ADVANTAGES OF SPECULATION:
Sustainable consumption level
Market liquidity and efficiency
Bearing risks
Finding environment and risks
Shorting
LIMITATIONS OF SPECULATION:
Winner’s Curse
Economic bubbles
Volatility
