**Education** **What is speculative trading?**\\ \\ Find out about speculative trading and the advantages and disadvantages that this form of trading can have.\\ \\ Read more →

[](https://my.axi-solaris.com/login)[](https://clientportal.axi-solaris.com/) [Home](https://www.axi-solaris.com/eu) / [Blog](https://www.axi-solaris.com/eu/blog) / [Education](https://www.axi-solaris.com/eu/blog/education) / Speculative Trading # What is speculative trading? ###### Education / ###### [Milan Cutkovic](https://www.axi-solaris.com/eu/blog/authors/milan-cutkovic) - [Education](https://www.axi-solaris.com/eu/search-results?stype=blogtags&search=Education) - [Speculative](https://www.axi-solaris.com/eu/search-results?stype=blogtags&search=Speculative) - [Trading](https://www.axi-solaris.com/eu/search-results?stype=blogtags&search=Trading) The world of finance is a complex, nuanced, and sometimes daunting place. There are many different types of traders with differing motivations and strategies for success. One of the more common types of trader, by far, is the speculative trader. In this article, we dive into exactly what is speculative trading and how it differs from investing. We also provide some tips for new speculators who may be interested in trying this type of investment strategy out for themselves and detail the many advantages and disadvantages that come with speculation trading. ## Table of contents - [Speculation definition](https://www.axi-solaris.com/eu/blog/education/speculative-trading#speculation-definition) - [What is speculative trading?](https://www.axi-solaris.com/eu/blog/education/speculative-trading#what-is-speculative-trading) - [What is an example of a speculative investment?](https://www.axi-solaris.com/eu/blog/education/speculative-trading#example-of-speculative-investment) - [Types of speculative traders](https://www.axi-solaris.com/eu/blog/education/speculative-trading#types-of-speculative-traders) - [Investing vs speculation](https://www.axi-solaris.com/eu/blog/education/speculative-trading#investing-vs-speculation) - [How do you speculate?](https://www.axi-solaris.com/eu/blog/education/speculative-trading#how-do-you-speculate) - [What are the risks of speculation?](https://www.axi-solaris.com/eu/blog/education/speculative-trading#risks-of-speculation) - [Advantages and disadvantages of speculative trading](https://www.axi-solaris.com/eu/blog/education/speculative-trading#advantages-disadvantages-of-speculative-trading) ## Speculation definition In the financial markets, speculation is when a trader purchases an asset with the hope that the asset will rise in value in the near future. In the world of [CFD trading](https://www.axi-solaris.com/eu/blog/education/cfd-trading-guide), speculating on an asset can also include hoping that the asset will lose value in the near future with the ability to go long and short on the underlying asset. ## What is speculative trading? **Speculative trading** is a form of trading where traders look to profit from market price movements \- whether the market goes up or down. It stands in contrast to traditional investing, which looks deeply at the fundamental values of investment. Contrary to popular belief, speculative trading is not necessarily as extremely risky and high in return as many would think. Nor does it always refer to trades that have the potential for significant gain. Instead, speculative trading revolves primarily around, you got it - speculation. The art of speculation is not fixed in a single direction (eg. versus investing which primarily looks for the investment to increase in value). This means that speculation can allow us to buy an asset (if we expect its price to increase) or sell an asset (if we expect its price to decrease). In terms of the risk involved in speculative trading - it can be as well [managed](https://www.axi-solaris.com/eu/blog/education/money-management-trading-strategies) as any traditional investment out there. There is your bias (up/down direction) followed by the levels at which you would close out a profit (or a loss). So in many senses, it is not that different compared to traditional investing and in fact, the ability to play both directions (up/down) gives you a slight edge over investors who only look for investments that will rise. We can see examples of speculative trades in black swan events. _So what exactly are black swan events?_ They are events that are extremely rare and difficult to predict with a huge economic impact that follows. An example of such an event would be the 2008 global financial crisis. ## What is an example of a speculative investment? Let's stick with the same example: the 2008 global financial crisis. So what happened in 2008? The global financial crisis was caused by the housing market bubble that began to form in 2007. Lower interest rates reduced the cost of borrowing for businesses and consumers. The result was an increase in home prices as homeowners took advantage of the low interest rates to take out loans they could not afford. These loans were then repackaged and sold as low-risk financial instruments, developing a secondary market for these subprime loans. Eventually, interest rates rose and home ownership reached a saturation point. Home prices tumbled, triggering defaults and sending out huge ripples that collapsed the global economy in 2008. So how is this related to speculative trading? While most investors were optimistic about the economy, Michael Burry, a hedge fund manager was one of the first investors to speculate and profit from this subprime mortgage crisis, as he recognised and predicted the collapse of the housing market bubble. He shorted the market by persuading investment banks to sell him credit default swaps (which will compensate him in the event of a default) against subprime deals he saw as vulnerable. As a result of this speculation, he earned a personal profit of $100 million. ### Other examples of speculative investments An example of a speculative investment is when a trader has the assumption that Bitcoin will continue to rise in value against the USD. Speculating on this price rise means the trader may go long on [Bitcoin CFDs](https://www.axi-solaris.com/eu/blog/education/cryptocurrencies/cryptocurrency-trading-guide), focusing on a short-term price increase and not thinking about long-term growth. [Gold CFDs](https://www.axi-solaris.com/eu/blog/education/commodities/gold-trading-guide) is another example, where this precious metal has years and years of history and traders are aware of its benefits as an investment, [currency](https://www.axi-solaris.com/eu/blog/education/forex/strongest-currencies-in-the-world), and store of value. Due to its limited amount and volatility, its long-term returns are well known. Many investors speculative trade on this underlying asset and it remains one of the most popular financial products globally. ## Types of speculative traders Aspeculative trader tries to [make a profit](https://www.axi-solaris.com/eu/blog/education/profit-taking-strategies) from changes in the prices of a particular financial instrument. We can dividespeculators by their directional view, their trading style, and what category of market participants they are in. ### Directional view: A bullish speculator anticipates that the price of a certain financial instrument will increase over time. They would therefore enter a long position. For example, atrader who expects that the Dollar will appreciate against the Swiss Franc over a specific period of time would go long USD/CHF. A bearishspeculator is betting that the price of a certain financial instrument will fall over time. They would therefore open a short position. For example, atrader anticipating a decline of the Euro against the Australian dollar would go short EUR/AUD. Find out more about [what is the difference between bull and bear markets](https://www.axi-solaris.com/eu/blog/education/bull-vs-bear-market). ### Trading style: Short-termtraders usually try to profit