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Economic Definition of speculation. Defined. Term speculation Definition: Buying an asset with the intent of reselling it later at a higher price. The purpose of speculation is simply to buy low today and sell high tomorrow. Those who engage in speculation have no reason for buying the asset, other than resale at a later time.
What is The Difference Between Hedging and Speculation Hedging involves mainly taking an offsetting position in a derivative in order to regulate balance any gains and losses to the underlying asset. Hedging attempts to get rid of the instability associated with the price of an asset by taking offsetting positions divergent to what the investor currently has. The main principle of speculation, alternatively, is to profit from betting on the direction in which an asset will be moving. Hedgers diminish their risk by taking an opposite position in the market to what they are frustrating to hedge. The ultimate situation in hedging would be to cause one effect to abandon out another.