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SS3: COMMERCE - 2ND TERM

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Meaning of Speculation

These are participants in the stock market who buy and sell shares for speculative purposes. They take advantage of the fluctuations in the price of securities. The speculators buy shares and resell such shares when the price rises. Therefore, the interest of the speculator is on the difference between the buying and selling prices (profit) and not on dividends.

1. Bulls: This speculator bases his speculation on the rise in the price of securities. They buy and resell securities at a higher price with the intention to make a profit. A bull market exists mostly during a boom period. This time, there is a record of general rising prices which also include stocks and shares. As a result of this season, the speculators are always optimistic of continuing rising prices in stocks and shares.

2. Bears: This is the speculator who sells securities he does not yet have possession of to people. He does this with the hope that the price of the securities will fall before the date he will deliver them to the buyer. This he does so that he can acquire the securities and sell at a profit margin. If he speculates right, he buys and delivers them to his clients but if the prices did not fall as speculated, he will not deliver the securities at the bargained price.

A bear who postpones the delivery of the securities pays his clients backwardation. This is because the speculator fails to deliver to the customer (client) the securities on the agreed date. 

A bear market exists during the period of slump when there is uncertainty in the economic level. At this period, there are serious expectations of a general fall in prices.

3. Stags: This is a speculator who applies for the issue of new stocks and shares. He bases his application on the speculation that the prices of shares will rise to a premium before the date he is supposed to pay for them. He makes a profit if the prices appreciate but if not, he runs into difficulty.

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