Speculators in stock market

Speculators 

If hedges are the people who wish to avoid the price risk the speculators are those who are willing to take such risk. These are the people who take positions in the market and furious to profit from fluctuations in prices. In fact the speculators consume information, make for kas about the prices and put their money in this forecast. In this process, they feed information into prices and the contribute to market efficiency. By taking positions, they are betting that a price would go up or they are betting that it would go down. Depending on their perceptions, they medtech long or short positions on futures and options for May hold spread positions (simultaneouslong and short positions on the same derivative.)

In the absence of the derivatives, speculation activity would become very difficult as it might require use funds to be invested. For example if an investors believes that the price of a share is likely to rise substantially, then he would need a very large sum of money to buy the shares, keep them and sell them off when the price rises. With derivatives, however, it is much easier to do so because the derivatives are highly leverd instruments. if the speculators prediction of the direction and amount of price change is correct, huge profits can be realised. For example suppose that a share is currently quotated at RS 32 and a text you later is strong on the share. Assume that a call option, with exercise price of RS 35 and due in one month on this share is available in the market at 50 paise per share full stop buying this option would require RS 50 (a call is fore hundred shares) only. now, if the price of the share is either less than or equ35 the call shall not be exercised and the loss would 20 rupees 50 or hundred percent of the investment. If you're on the other hand the price rules at rupees 40 then a gain of 100 X(RS 40- RS 35)= RS 500 would be made which works out to be 900% of the investment! with no option or other derivative available, the investor would be required to invest rupees 3200 for hundred shares and would make a profit of rupees 800 that is only 24 % of the amount invested. Not only that much bigger losses would be included if the share price were to settle at less than rupee 32. obviously, therefore the derivatives adequately address the needs of the speculators without threatening the market integrity in the process.

The speculators in the derivatives markets may either be day traders opposition traders. The day traders speculate on the price moments during one trading day open and closed positions many times a day and do not carry any position at the end of the day. Obviously they monitor the prices continuously and generally attempt to make profit from just a few takes per trade. On the other hand the position traders also attempt to gain from price fluctuations but they keep their positions for longer durations may be for a few days weeks or even months they use fundamental analysis or technical analysis as also any other information available to them to form their options on the likely price movements.