In a broad sense, any risk-taking behavior for profit can be called speculation; in a narrower sense, speculation refers to risky investment behavior that takes advantage of fluctuations in the price of commodities or financial assets in the market. Speculative trading in the stock index futures market refers to the trading behavior of investors who buy stock index futures contracts on a bullish basis and sell them on a bearish basis to obtain a spread based on their prediction of the trend in the price of the stock index futures contract.
Speculative trading is indispensable in the futures market, as speculators take on the risks that hedgers seek to avoid and transfer, making hedging possible. At the same time, speculators are more active, increasing the volume of the futures market and improving its liquidity, which allows hedging demand to be met in a timely manner and reduces the price volatility that can be caused by traders entering and leaving the market.
Compared to other trading behavior, speculative trading has the following characteristics:
The aim is to make a profit
Speculators participate in futures trading with the aim of making a profit by buying at a low price and selling at a high price, using certain analytical methods to predict the price movement of futures.
Active risk-taking
Speculation and hedging are very different in their approach to risk. The purpose of hedging is to hedge the risk of price fluctuations, whereas speculative trading is the active assumption of the risk of price fluctuations, and therefore investors involved in speculative trading should have a strong tolerance for risk and should be prudent in their assessment and decision making.
No delivery in general
Speculators do not have a real need to buy or sell the underlying contract and do not generally take delivery in the futures market, choosing instead to close out their positions before the futures contract expires. Therefore, the speculator is not concerned with the actual underlying, but with the trend and spread of the price movement of the contract.
