Stock speculation is done all over the world in all major stock markets. The speculation in stock market is done by speculators that buy the stocks of certain companies. Many a times, this leads to an artificial price rise in the stocks, without any underlying fundamental. The speculators will then sell off the stocks once the price rise is enormous. Thereby they will gain a profit after the margin call costs, brokerage charges and the taxes have been paid.
How does speculation happen?
As the stock market speculation reaches a peak and sell off happens, the same shares will lose their value quite quickly. The speculators in the stock market are only worried with the price rise of the stock in recent future. On the other hand an investor in the stock market will understand the fundamentals of the stock and how the stock is likely to perform in the long term. Speculation in stock market relates to forecasting.
Such speculators will usually look at the charts and how the stock has performed. They will gamble on the premise of how high or low the stock will go in the coming days, weeks and months. The speculators that aren’t able to forecast correctly will lose out and book heavy losses also. Forecasting needs to be done in bullish and bearish markets too. In both cases, the speculators need to find the stocks that will increase in value in the future and then buy them at lower prices to book profits.
Speculation can also affect the economy
Speculation in stock market is good for players in the market. But a constant high and low can affect the trust in the stock market and can even affect the economy. When the markets are touching a high, speculation among investors is rampant as the prices of the stock market are extremely volatile and the prices are changing in an hour to hour basis.
Effect of the world markets on the Indian stock markets.
Currently the stock market speculation in India is quite high. Also there is large net inflow of funds by FII in India. Furthermore, since the capital markets in India have opened up, our stock markets are no longer insulated against other financial markets. The past month has seen a huge volatility and has seen the market fall by more than 2000 points especially on the BSE Sensex. Since the US was downgraded from an AAA rating to AA+ credit rating, there has been a virtual blood bath in the share markets around the world.
Along with the stock markets, the dollar is also facing the heat and has depreciated against almost all major currencies. It has also led to the Rupee strengthening against the dollar. Around the world, speculators and investors in the stock market are now moving their funds from stocks and shares to fold. Phenomenally in the past weeks, gold has seen a jump in the Indian markets and around the world.
