What do you mean by Speculative Assets ?
Speculative assets are financial investments which have an expectation of generating profits from price appreciation. Investors invest in such assets believing that the asset’s price will increase in future over a specific period of time, letting investors sell the asset at higher price, realizing profit. There are no fixed categories of speculative assets. Any assets that investors hold as a result of speculation are speculative assets. The intention of investors towards a certain financial investment makes the assets speculative.
Despite this, there are certain investments which fall under the such assets. Some of such assets which are owned for the purpose of speculation are:
| Cryptocurrencies | Commodities | High Growth Stocks |
| Derivatives | Exchange Traded Funds | Foreign Exchange |
| Collectibles | Private Equity Investments | High Yield Bonds |
What are the Characteristics of Speculative Assets ?
Some of the key characteristics exhibited by such assets are:
High Volatility
They have high price volatility. The investment in such assets is made considering that the price may go up. There is high price fluctuation over a short period of time.
Short Term Investment
Investors are interested in such assets for quick and short investment. They consider the price to go up and make an investment. Once they earn profit they exit by selling the assets. Investors capitalize the short-window of opportunities.
Risk-Reward Tradeoff
There is potential for high returns. Investors invest in such assets considering the probability of price appreciation. But, the market is dynamic and is prone to change. There is no certainty that the asset will have the price appreciation. There is high reward to high risk in such assets but is uncertain.
Price Appreciation
The aim of investment in such assets is to gain quick profit from price appreciation rather than regular income generation from dividend or coupon payment. There are no long term holdings of such assets. Investors invest in such assets hoping to get benefitted from price appreciation.
Market Sentiment
Investment market is very volatile. The price of such speculative assets are heavily dependent on market sentiment, news and social media impressions. The price swings of such instruments are uncertain. Market sentiments and a single news can take the price to fortune and the same market sentiments and news can make the assets valueless.
Lack of Regulation
Such assets are less regulated as compared to other financial assets. Some assets are new to regulations and some assets operate in informal markets. Due to some characteristics of the assets , such assets are operating in a less regulated environment. Due to this, speculative assets have a high risk profile.
Limited Fundamental Analysis
Unlike any other financial assets, speculative assets have limited exposure to financial metrics. There is no regular pattern to predict their movement nor do they have any standard financial parameter to project their performance.
Herd Mentality
The investment decisions of such speculative assets are based on trends and peer investment decisions. The price mobility of such assets are based on market sentiment and market volatility.