Which term describes an investor who attempts to profit from price movements by betting the asset direction, accepting risk for larger gains?

• A. Hedging
• B. Speculation
• C. Arbitrage
• D. Diversification

Answer: (B)

Speculation is about taking on risk to try to profit from expected price moves. An investor who believes the asset will move in a certain direction then makes bets that capitalize on that movement, accepting greater risk in exchange for the possibility of larger gains. This contrasts with hedging, which aims to reduce risk by locking in prices or offsetting potential losses; arbitrage, which seeks risk-free profit from price differences across markets; and diversification, which lowers overall risk by spreading investments rather than aiming for big gains from price timing. In markets, speculators provide liquidity and react to anticipated trends, which is exactly what this description captures.