Speculative Trading Explained
Speculative Trading Explained

Speculative Trading Explained

Want to learn about speculative trading and how it differs from investing? This article contains insights to sharpen your knowledge of this strategy.

Dr. Clemen Chiang
Dr. Clemen Chiang

A speculative trading strategy comes with considerable risk but also a high payoff. A calculated approach must be taken in order to limit one's downside and present unlimited upside.

Many investors turn to speculative trading to beat the market. A speculative trading strategy helps people achieve life-changing returns in short timeframes.

What Is Speculative Trading?

Speculative trading presents significant upside. Some of these trades let you outperform ten years of the S&P 500 in a few days.

A single speculative trade can catapult someone from poverty to riches. Some speculators turn a few hundred dollars into enough money for a down payment. You can't find appreciation that quickly as a long-term investor.

However, not every speculative trade works in your favor. If you miss the timing, you could lose all of your money or fall into debt.

Speculative trading places a strong focus on price fluctuations. An asset's valuation and fundamentals carry little significance.

Speculative traders will not go into a trade unless the potential return is high. Speculators take a considerable risk. They want to make sure a worthy reward awaits on the other side.

How Investing Differs from Speculative Trading

You won't find speculative trading in a retirement account, and for a good reason. Speculators look a few days or weeks into the future. Investors look years and decades into the future.

Long-term stock investors do not care how asset prices move in a given week. They buy the dips and see weakness as an opportunity.

During a dip, the speculator will already make a profit or lose their investment. A speculator's fade gets decided quickly.

Investors focus on saving up for retirement using small ball tactics. Speculators rely on a "home run or bust" strategy. Investors have more time to spare while speculators need rapid movement.

The Types of Speculative Traders

The two most popular types of speculators are day traders and swing traders. Day traders make a flurry of trades throughout the day. They exit all of their positions before the stock market closes.

Swing traders will hold onto their positions longer than a day trader. They may hold onto their assets for weeks or months.

Swing traders search for buying opportunities based on recent price movements. They ride the asset up and then swing to a different investment.

Swing traders don't stick with investments for too long. However, they hold onto investments longer than day traders.

Crafting a Speculative Trading Strategy

Before speculating, assemble a strategy for your best interests. Each speculative trader should anticipate making a wrong choice.

Speculators can only guess how the market will move. Even with compelling evidence, they can make a wrong decision.

A toxic speculative trading strategy embraces an all-in approach.  Speculative trading can produce incredible gains and lead to incredible losses.

Rather than let the worst-case scenario invite fear, take calculated risks. Only invest as much into speculative trading as you can afford to lose.

This strategy decreases anxiety if your trade goes the wrong way. You can always try again with another small sum of money. One well-timed trade can compensate for several lost trades.

Establish your current and future objectives. What does enough mean to you?

Most speculators never ask this question and fall into bottomless greed. Some people continue speculating even when they can retire with their current funds.

Create a speculative trading strategy that addresses your income and expenses. A profitable speculative trade can change the tides of your finances. However, a series of poorly done trades hurt your ability to afford your lifestyle.

A speculative trading strategy with objectives in mind will assist with better decisions. You will decide which speculative trades warrant a closer look. These are some of the speculators' favorite choices.

Shorting Stocks

When you short a stock, you benefit from downward movement. Some speculators short stocks right before earnings for the volatility.

However, shorting a stock can backfire. Speculators must close short positions by purchasing the stocks they shorted.

Let's say you short ten shares at $50/share. If the stock rises to $60/share, you must pay $600 to close the position. This movement results in a $100 loss.

Shorting stocks and other assets presents the risk of unlimited losses. While unlikely, a stock can quickly double in price. This scenario would create considerable stress for a short seller.

Options Trading

Almost every gain and lost in the Wall Streets Bets group comes through options trading. You can buy calls to win on appreciation and buy puts to win on depreciation.

Each option comes with an expiration date. Any options trading outside of the money at expiration become worthless. Options trading in-the-money continue to hold their worth.

An option gives a trader the ability to buy or sell 100 shares at a set price. Most speculators trade options rather than exercise them.

Option traders pay a premium to buy an option. You will pay higher premiums for a further expiration date. Your premium will also increase if you select an option near the money.

If a stock trades at $49/share, and you buy a call with a strike price of $50, you are near the money. If you buy a call with a strike price of $80, you are far out of the money.

The latter call costs less, assuming the same expiration date. Options trading is a form of leverage without margin debt. Some options rise 10x overnight or drop to zero overnight.


Day traders often use leverage when trading stocks. Leverage allows them to purchase more shares and achieve outsized gains. Closing their positions before market close decreases vulnerability to the downsides of leverage.

This investing strategy lets you double your gains. However, you also double your losses.

You don't have to use all of your margin money. Savvy investors only use a small percentage of margin for their portfolios.

The Ultimate Resource For Speculative Trading

Before you enter speculative trading, you need the right resources. These resources help you anticipate price fluctuations and provide critical information.

Spiking provides transparency in the world of insider trading. Our stock trading AI empowers investors to grow their portfolios. You can conduct speculative trading on our platform or let our AI trade for you.

Join the Spiking Wealth Community

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