Meaning of Speculator
Speculators are the one who work with stock exchanges for earning profit through speculation. He is a person who invests in risky financial securities in order to benefit from price movements in the short run. Speculators buy these risky securities only for making gains by taking advantage of price differentials. They do not buy these securities for the long term or to retain them.
Speculators cannot be termed as genuine investors. An investor focuses on the fundamental value of the investment on the other hand speculator focuses only on market price movement. Every speculator is an investor only to some extent and in the same way, every investor is a speculator to some extent. Speculators have an important role in maintaining an efficient market as they undertake those risks which other participants do not. They help in creating liquidity in the market by frequent purchase and sale of securities.
Speculators use several economic calculations and market forecasts for anticipating future price movements. They earn profit basically by predicting future price movements of the financial investment. There are different types of speculators who operate in the stock markets like Bull, Bear, Jobber, Broker, Stag and Lame Duck. Different types of speculators are explained clearly as given below:
Types of Speculators in Stock Exchanges
Bull is a speculator who is optimistic in nature. He is the one who anticipates a rise in securities price. Bull buys the securities in order to gain from price rise in future expected by him. If Bull anticipation about the rise in price stands true he gains even without taking actual possession of securities. On the other hand, if price fall he may incur losses. The bull speculators are known as Tejiwala in India.
Bear is a speculator who is pessimistic in nature. These speculators anticipate fall in prices of securities. Bear sells the securities which he does not possess for future delivery. He sells them in order to take benefit of buying these securities at a low price in future. Bear aims to earn profit through this price differential. But if the price of securities goes up he may suffer losses. Bear speculators are known as Mandiwala in India.
Jobbers are professional speculators who perform important functions as a member of the stock exchange. He has complete information regarding the securities he deals in. Jobbers are independent dealer in securities and transact them in his own name. They deal only with members of stock exchanges like with broker or other jobber and do not interact with a non-member. Jobbers transacts in securities for earning profit through speculating activities but not for earning commission.
Brokers are a public agent who acts as an intermediary between the public and jobbers working at the stock exchange. They do the work of linking the jobbers with outside public. Brokers are bonafide members of the stock exchange. They are experienced persons who help the public in dealing with skilled jobbers directly. Brokers generally deal in a different kind of securities and charges commission for rendering their services to the public.
Stag are speculators who are bullish in nature. These are cautious speculators and are termed as premium hunters as they transact in securities solely for earning premium. They represent themselves as genuine investor and invest in shares of newly floated companies. They do not want to be an actual shareholder of company but intend to sell these shares at a value above par in future to earn premiums. They generally invest in shares of those companies whose value are likely to risk and will carry a premium in future. In case if the value of shares falls, then stag suffers losses.
Lame duck are speculators who are not able to fulfil their commitments. These are bear speculators who struggles like a lame duck and suffers heavy financial losses. Bear speculators sell securities for the future delivery date which they do not possesses. They anticipate fall in prices of such securities in future and intend to buy at lower prices later on and earn the price difference. On the fixed delivery date sometimes speculators do no possess any securities due to non-availability in the market. But the other party refuses to postpone delivery and in such case he bears losses. Such speculators are known as Lame duck.