Posted in Finance, Accounting and Economics Terms, Total Reads: 281
Definition: Speculative Capital
Let us first understand the meaning of speculation first, it is the practice of trading in risky financial transactions so as to ensure to attempt to profit gain from fluctuations in market rather than to attempt to gain profit from the financial attributes embodied in an instrument like capital gains, interest and dividends. So now what is speculative capital, it is the funds solely earmarked for the purpose of speculation.
So the speculative capital is associated with high level of volatility and so is also associated with a high probability towards loss. So many if the speculators would have a investment horizon which is very short term and would often use a high degree of leverage to ensure that they receive profits every time. As now we already know that this type of trading involves a huge amount of risk attached to it, it is very critical that the speculators have a good risk management system and they also have to ensure that they do not become emotionally attached to any of the trades. This type of trading which would involve speculative capital is not for novices, who many a times would be so attached to a trade that they would stick to the trade till end and would lose out on its value.
Investors/traders should clearly differentiate between tradable capital and speculative capital and should not mix them up. The speculative capital would defiantly be much more risky ie prone to more risk. This type of capital is sometimes regarded as expendable, as the investor is willing to lose all of it in a worst case scenario.