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In a financial context, speculation is the supposition of the risk of loss, in return for the uncertain prospect of a reward. Speculating is not the same as investing, though many seem to think so. Such a position would only be considered an investment if the particular position involved zero risk.

Financial speculation involves buying, selling, short-selling, holding, stocks, bonds, currencies, derivatives, real estate, or any other valuable financial instrument to profit from fluctuations in the price as opposed to buying it for use or income. Speculation represents one of four market roles in Western financial markets, different from hedging, long or short-term investing, and arbitrage. Currently, one of the most popular assets to speculate on is property. Real estate speculators are looking to turn a profit in the market. There is high risk involved with this business, but that hasn’t deterred the lion’s share of speculators.

In a sense, one could make the argument that a property speculator is nothing more than a gambler, especially in this day and age. In the game of roulette, players put money on a number, color, or column, without knowing the final outcome. If they win their bet, their money is increased. However, it’s far from a 50/50 shot. Many variables exist in the game which makes the play a real “gamble.” Such is the case with property speculation.

Just for the auctioneer types, one can purchase a home for pennies on the dollar, invest wisely in refurbishing the property, and return the property to the market with an increased price tag. This isn’t new business by any stretch of the imagination. It’s a proven method that does work, however sporadically. There’s nothing to stop that big wheel from landing on 0, leaving you there to eat the investment.

It’s in a person’s nature to “gamble” when it comes to seeking a profit. Part of this is due to the way society favors the wealthy these days. We’re witnesses to how easy the money making process can be. But what we’re not told is how all the variables have to line up. When we’re being bombarded by the high-dollar lifestyle, there isn’t any risk-assessment disclaimer which proceeds. The world’s addiction with fixer-up TV shows also makes one believe that for $20,000 put into a new kitchen, that house could resell and net them a return of $80,000 on just the kitchen investment.

In a time of negative economic growth, it’s simply not logical to assume that money can be made by the majority of property speculators. With a full-fledged recession on hand, people are more intent than ever to turn a profit. It’s ironic to consider that speculators actually hurt the economy, yet the more the economy is hurt, the more speculators turn out.

Speculative purchasing can create inflationary pressure, causing prices to increase their true value simply because the speculation purchasing systematically increases the demand. Speculative selling can have the opposite effect, causing prices to decrease below their value. This creates a positive feedback loop which sees prices rise dramatically above an item’s worth. This period is followed by extreme price drops and even crashes. It would seem as if property speculators are not only gamblers - they’re compulsive.