This article will help you to differentiate between speculation and gambling.
Speculation is undertaken with a view to protecting against future fluctuations (in securities’ prices) and to make profit out of the price-differentials. Gambling on the other hand, is undertaken solely with a view to making profits on price movements.
2. Degree of Risk:
Speculation is based on the scientific analysis of market conditions. Accordingly, it is a calculated risk. On the other hand, gambling involves blind chance-taking. Therefore, it comprises total risk.
3. Basis of Decisions:
Foresight is the basis of speculation decisions. Speculation proper is based on scientific knowledge of business conditions and proper forecasting. Gambling is purely an exercise in chance and is undertaken blindly and ignorantly. There is no objective knowledge of business conditions under gambling.
Genuine speculation is a useful activity. It helps in ironing out price fluctuations and thus, builds investors’ confidence. In this manner, good speculation is socially desirable. Gambling is harmful to the community as it victimizes investors by causing violent fluctuations in securities’ prices. Healthy speculation tends to iron out price fluctuations, whereas gambling only accentuates these fluctuations.
There is no legal restriction on speculation. It is a legally permissible activity because it is a valuable economic service. Gambling, on the other hand, is unsocial, unhealthy and illegal.
6. Physical Transfer of Securities:
Speculation may involve physical transfer of securities or it may be merely a trading on price-differences. Gambling, however, never involves physical transfer of actual possession. It aims at reaping profit solely on price movements.