Gambling was the word with attached negativity but speculation cleared the mess already. Although the stock markets are perceived to be gambling dens yet they show that higher returns are worth the risks.
For my start-up, I met investors but surprisingly they are staying away from lit up green and red screens.
But this idea of speculation is quiet interesting, especially, for investors like you and me.
Not only is there an economic benefit but also a larger social good that speculation brings. And if we talk about our country – be it IPLs, Elections or the slightest of the things, people have assumptions and from there the chain of speculation starts. Also, not just the stock prices – commodity markets, oil prices, exchange rates, and interest rates are certain factors that impact the economic value to the greater segment of the people.
Activities, whether economical or void of quid pro quo, but if those involves finances and are capable to generate output and employment for many hinge critically.
Ever since a business is getting its returns the financial motivation is often considered as the key factor. E.g.: farmer is concerned with pesticides’ response to new government policies, car manufacturer’s profits are hugely depended on steel prices and balance sheets of banking industry fluctuate greatly because of the fluctuations in gold prices.
But with financial motivation comes financial risks, since the prices are not constant and are largely mitigated through speculative markets. Businesses often trust speculation over arbitration. Let’s just say, a poor monsoon alters the price of agricultural produce and a weakening global economy impacts the gold price and that is where speculation helps. It helps in bringing information into the prices and thus these markets are actually the markets of information.
Players continuously seek information, respond it and have reflexes to it. And these multiple reflexes makes market both – efficient and effective.
As Indians, we appreciate content purity in purposes and in actions. And most of us believe that prices should be driven fundamentally ethical, just because of our cultural inputs. But there we are, simplistic and wrong, as we believe that delivery is compulsory, which as the pre notion is wrongly conceived.
Also, Indians think they need market that caters to their liquidity needs, well which is totally wrong. If this is the case then such markets shall be illiquid, as we are in dire need of buyers and sellers who would speculate at whim to get blood in our economy by way of liquidity. Speculators are the one, who create NOISE to the markets. A person from top management would have neglected certain small information, but speculators are the one who have already reacted to it.
And now the question arises – should the government be monitoring such a segment and as a professional, I believe it should just regulate it rather than controlling.
As an economy, we need –
- A market we have informed investing.
- Liquidity seeking transactions.
- And a structure that regulates it both.
And a chain of risks occur when speculative positions are not honoured and the major threat worldwide is Chain of Defaults.
And the monitoring systems are resilient and not failproof as several events in the past have shown.
Just the word SPECULATION has taken the negative fame as it is synonymous for betting and gambling. But speculation is not a social ill, rather legal in the eyes of laws.
And as said by Raghuram Rajan in his press conference once, which I would like to recall “Legalising gambling and/or speculations have their own merits. All risk-loving societies with entrepreneurial spirits love Game of Chances.” Apologies, Game of Throne Fans!
And I would like to conclude by saying, to harness this need for a greater good is better than trying to get a clean society where no one makes a bet.
The Article Written by