Speculative Capital

DEFINITION of 'Speculative Capital'

The funds earmarked by an investor for the sole purpose of speculation. This capital is often associated with extreme volatility and a high probability of loss. Most speculators have short-term investment horizons and often use high degrees of leverage in their efforts to obtain profits.

BREAKING DOWN 'Speculative Capital'

Given the above average probability of loss in speculative trading, it is critically important to exercise good risk management and not become emotionally attached to a certain trade. It is not uncommon to see novice investors hold onto a position until it loses nearly all of its value. Given their limited experience, rookie traders should regard all their tradable capital as speculative capital. In other words, they should only invest whatever amount of money they can afford to lose without their way of life being materially affected.

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RELATED FAQS
  1. What is the difference between investing and speculating?

  2. Do speculators have a destabilizing effect on the financial system?

    A speculator is anyone who trades derivatives, commodities, bonds, equities or currencies with higher-than-average risk in ... Read Answer >>
  3. What is the difference between speculation and hedging?

    Learn about speculation and hedging, the difference between them, and how traders and investors speculate and hedge. Read Answer >>
  4. What is the difference between speculation and gambling?

    Learn about speculation and gambling, examples of speculation and gambling, and the main difference between a speculator ... Read Answer >>
  5. How can derivatives be used for speculation?

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  6. How are risk profiles and speculation related?

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