What is a speculative risk?

A speculative risk refers to a situation where there is the possibility of a loss, no loss, or even a gain. This type of risk embodies uncertainty and involves situations where the outcomes can lead to both positive and negative financial implications. In contrast to pure risks, which only entail the possibility of loss or no loss, speculative risks introduce the potential for profits alongside the risks of loss.

For instance, investing in the stock market is a classic example of speculative risk, as prices can fluctuate, leading to potential gains or losses for investors. This characteristic of having three possible outcomes—gain, loss, or no change—is what fundamentally defines speculative risk.

On the other hand, the option that encompasses guaranteed loss is associated with pure risks, which are not speculative. Predictable outcomes typically do not align with the nature of speculative risks because they inherently carry uncertainty. Finally, fully insurable risks are generally seen in the realm of pure risks where losses can be quantified and transferred to an insurance provider, making them distinct from the concept of speculative risk.