Speculative Risk In Business

Speculative risk is a category of risk that can be taken on voluntarily and will either
result in a profit , loss or sometimes staying even.. All speculative risks are made as
conscious choices and are not just a result of uncontrollable circumstances . The
traditional insurance market does not consider speculative risks to be insurable.
At the same time, the result of a speculative risk is hard to anticipate, as the exact
amount of gain or loss is unknown. Instead, various factors—such as company history
and market trends when buying stocks—are used to estimate the potential for gain or
loss.
In contrast to speculative risk, pure risk involves situations where the only outcome is
loss. Generally, these sorts of risks are not voluntarily taken on and, instead, are often
out of the control of the investor.
Since there is some chance of either a gain or a loss, speculative risk is the opposite of
pure risk.Someone who invests in stocks, for instance, invests in a speculative risk—
they cannot possibly tell whether the price of stocks will go up or down. 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.
Speculative risk is controllable risk as it involves moral hazard that makes people seek
out some risks rather than avoid them, thus it’s a choice and not the result of
uncontrollable circumstances.
Every business faces speculative risks, whether it’s the launch of a product that might
not be profitable, a new hire that may or may not work out, or the investment in
resources that might help move the company forward. Everything in a business is a
speculative risk. Greater the speculative risk, the higher the potential for profits or
returns.
The nature of these speculative risks makes them uninsurable, but not unmanageable.
They all point to the possibility of gain or loss.

There are 4 (four) types of speculative risks, namely: market risk, credit risk, liquidity
risk and operational risk.
a. Market risk
Market risk is the risk that arises because of changes in market prices such as the value
of stock prices that always experience movement and can cause losses if the price
drops.
b. Credit risk
The emergence of this risk is caused by the failure of the company to fulfill its
obligations to other companies, for example, bad loans.
c. Liquidity risk
The company’s inability to meet cash needs can be called liquidity risk.
For example, the amount of cash is limited so that the company is unable to pay debts
on time.
This can make a company have to sell its assets to fulfill its obligations.
d. Operational risk
This risk is the risk that results from operational activities that are not going as well as
an operational and administrative business producer.
To overcome this risk, you must always check operations alternately, prioritize risks and
set standards for dealing with these risks.
In addition to the above types of risks, various business risks can be shared according to
their control.