Almost all investment activities involve some speculative RISKS, as an investor has no idea whether an investment will be a blazing success or an utter failure. Some assets carry a combination of speculative and hedgeable risk, such as an options contract. If you buy a call option, you know in advance that your maximum downside risk is the loss of the PREMIUM paid if the options contract expires worthless. At the same time, you do not know what your potential upside gain will be, since nobody can know the future.

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Pure Risk

Speculative Company

Market Risk

BREAKING DOWN 'Speculative Risk'

Some investments are more speculative than others. For example, investing in government bonds has much LESS speculative risk than investing in junk bonds, because government bonds have a much LOWER risk of default.

A speculative risk has the potential to result in a gain or a loss. In COMPARISON, a pure risk will only result in loss. Speculative risk requires input from the person looking to take it on and therefore is entirely voluntary in nature. Any investment may be seen as speculative, as most investors will not take on investments that are known to result in losses.

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