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An individual or firm taking risks for the sake of expected profits. Speculators may be willing to do this because they believe they have better information and ability to forecast future prices than other market participants, or because they are risk-neutral, or less risk-averse than other market participants, who are willing to pay to transfer risks to somebody else. Speculation has been seen as a cause of economic instability. This possible disadvantage has to be set against the claims that speculators provide liquidity for other people's assets, that on average their activities smooth price fluctuations rather than increasing them, and that without speculators many innovations could not have been financed.

Subjects: Economics.

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