Generally speaking, the way to distinguish between "speculation" and "gambling" should be based on the characteristics of risks and the degree of benefit to society. Gambling only creates certain risks for those who are willing to take risks. Horse racing, poker games and roulette have their own risks, but without them, these risks simply do not exist. Gamblers are willing to accept these risks, and in return, they get the opportunity to get money. Gambling can't bring any benefits to society unless some people think that gambling provides a necessary exit-that is, if these gamblers don't gamble, their desires may be satisfied by something worse than gambling.
Speculation is only an investment activity. Of course, the rate of return realized in this investment activity may be quite different from the expected rate of return. In fact, it is impossible to clearly distinguish between "speculation" and "investment" because they actually represent the same activity, and the only difference between them is the possible deviation between the actual rate of return and the expected rate of return. It is incorrect to distinguish these terms only according to the occurrence or duration or income status, because the inherent volatility of assets and the total amount of leveraged capital used by controllers may cause deviation from the expected income.
Different from gambling, in a free market economy system, the risks dealt with by speculation are inevitable in the process of buying and selling goods and services. For example, in the process of soybean ripening, harvesting, concentration and distribution, it is obvious that those who own these soybeans or are obliged to buy them according to the contract will certainly bear the risks brought by price changes. Whether the futures market exists or not, these risks exist. Even if speculators are unwilling to take these risks, there will always be people who have to take them. Unlike gamblers who create gambling games only to satisfy their gambling wishes, speculators do not inject risks into the social system in order to satisfy their gambling wishes.
If hedgers only operate in the futures market to reduce risks and pass on the saved costs to consumers, if the existence of speculators makes this possible, then the view that speculation has social value will not be debated again. In fact, when hedgers operate in the futures market, their primary purpose is to increase their profits rather than reduce their risks. If they think hedging inventory or signing a forward sales agreement is the best way to get more profits, they will do so accordingly. If they think it is ok to hedge only part of the inventory, they may hedge part of the inventory. Even in some cases, they are very confident about the future price trend, so they may keep all the risks without hedging. In reality, this kind of selective hedging is more common than the hedging mentioned in the textbook (in the textbook, all risks should be hedged through hedging).
Obviously, the above behavior is tantamount to speculation to increase risk rather than hedging to reduce risk. If this kind of speculation succeeds, then its behavior is beneficial to both the company and employees, and the economic system is also developed from this kind of behavior of the company.
It is undeniable that many individual speculators and individual gamblers have exactly the same motives and opportunities. In other words, they are willing to take relatively large risks in exchange for the opportunity to gain greater profits. Besides, they can all have some fun from it. But the difference between the two is that the activities of futures speculators are very important for hedging, so it is also conducive to the smooth operation of the economy and society.
In fact, the above theory has been made clear, but I still want to talk more clearly about the economic function of speculators. Maybe after reading it, you will be proud of being a futures speculator and will be eager to become a futures speculator.
We believe that futures trading is beneficial to the public who ultimately consume futures trading goods. Its primary advantage is that hedging may transfer the risk of price fluctuation, because it will reduce the production, marketing and processing costs, and those enterprises will pass these saved costs on to consumers, which is beneficial to society. In addition, the futures market also brings some other important benefits, such as providing continuous, accurate and effective price information and providing a continuous flowing market for commodity trading. However, without speculators, it is impossible for the futures market to operate effectively, because the business volume of hedgers is too small to provide the necessary liquidity for an effective market. Therefore, if the operation of the futures market is beneficial to society, speculators who make the market operate effectively will also make contributions to society.
Well, that's all. I believe everyone has a new understanding of speculation. I hope you can become proud and happy speculators in the futures market.