Speculation in Stock Trading, Is It Permissible?

Speculation literally means an action based on chance. In a trading context, speculation refers to buying or selling something that may yield a large profit.

In other words, speculation relies solely on probability rather than forecasting or analysis.

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Stock Speculation ≠ Stock Investment

Stock investment, as we know, is a long-term capital allocation based on in-depth analysis of fundamentals, technicals, market and intrinsic value, as well as future growth prospects with the aim of achieving stable returns.

Meanwhile, stock speculation prioritizes quick gains from short-term price fluctuations, carrying inherently higher risk. A speculator is often profit-oriented without regard for fundamental valuation.

Does Speculation Mean the Same as a Trading Approach?

Speculation is essentially a form of trading, but not all trading is speculative.

Trading in general combines fundamental and technical analysis with more measured risk management—such as position sizing, stop-loss, and risk-reward ratios.

Speculation, on the other hand, relies only on technical analysis and market sentiment, adopting maximum risk tolerance (wide stop-loss, high leverage) for the potential of large profits in the shortest possible time.

Although it may seem negative, a speculator actually contributes to increased market liquidity and accelerates price correction due to their high trading frequency.

Healthy Speculation Practices

Besides the risks of volatility and psychological impacts like panic selling or FOMO, speculation can diversify strategies if applied responsibly.

• Use capital separated from your total portfolio, for example 5–10%.

• Maintain clear stop-loss and take-profit rules.

• Limit position sizing, avoid overleveraging on margin facilities.

• Master technical analysis and understand macroeconomic factors that influence stock fluctuations.

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Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).