Some explain to me why speculation on any market should even be

[Skidmore]

legal. What function does it serve? I don't understand what anyone except the speculator gains.

[xchrom]

1. Better be a good rock solid answer.

Cause at this point I think they're criminals.

[Bosonic]

2. I'm not sure what your definition of speculation is

But when an average person buys stock they are presumably hoping (or speculating) that it will increase in value in the future, at which point they can sell it to another speculator who likewise believes/hopes the stock will increase in value from its current level. Is this wrong?

[RevStPatrick]

3. You answered your own question.

The speculator gains.
And with a portion of the profits, (s)he buys political influence, thereby making certain that said speculation does not break any applicable laws.

[Motown_Johnny]

11. but what happens when the commodity suppliers speculate on their own product

artificially driving up the price and absorbing the eventual loss when the bubble bursts as simply the cost of doing business?

[Democracyinkind]

4. Every economic activity is inherently speculative.

Once you go down that road, nothing much will remain in the field of "justifiable economic activity".

While there are certain mechanism to prevent/prosecute certain forms of speculation in the markets, it's a very fine line drawn on normative, not descriptive, indicators. We have tried to come to terms with the "speculative" aspect of economic activites since the early middle ages and haven't made much progress. It's quite tricky, and not all bad - but I do agree that we're in a phase where things have gotten particularly ugly.

[spanone]

5. ti serves to increase profits to the speculators...

[Shagbark Hickory]

6. I can go to every supermarket in town and buy every last loaf of bread.

And then gouge the hell out of people who want any.
Illegal, right?
Oil speculation should be too.

[dkf]

7. You would probably be left with a bunch of moldy bread.

While many people will just wait for the next shipment.

That would be a lame move.

[Javaman]

8. Nail on head.

people believe that when suddenly all speculation is removed and fixed prices are instituted, then all will be well.

Want to see an example of the effect of fixed pricing? The soviet union comes to mind. The result? A thriving black market with amazingly high prices.

Speculation, while some might not like it, allows for a free and flexible market.

again, I'm always amazed when people get bent out of shape over speculators when the price of oil at $100+ per barrel, but not a peep when it was at $70.

However, regarding having a fixed price. Given the fact that the good sweet crude is just about gone and the world is running mostly on dirty sour crude, it would be wise now to come in and fix the price, since oil is a finite resource. The price, however, should be fixed via a governing body through the UN. On top of that, part of that same fixing plan should also include an emergency rationing stipulation in the event that oil production becomes so constrained that only vital industries should get uninterrupted supplies, if possible. Such as: Hospitals, food production, fire and police.

[Shagbark Hickory]

12. That's how it goes down with the oil speculators as well.

[ThomWV]

9. Because restricting who can and can not enter a market is just as corrupting

Keep this in mind, the speculators could not have driven the price of oil up (on the futures market) if the general public had not been propagandized to believe that oil prices could never do anything but go up. The same people who perpetuated that lunacy (including the Peak Oil folks) were also convincing Americans that the price of houses could never go down. We saw how that one worked out too.

You know what's really the most absurd thing about both of those examples, oil and housing? Its that virtually everyone who believed that prices could never go down fully expect them to return to the overblown prices they were at the height of the fraud. In the housing market its even worse than that, most of them consider a return to absurd pricing to be the benchmark that tells them things have finally got better.

[brooklynite]

10. Speculation is a term of art...

This is not a case of putting your cash down in a bet at a casino, where you're playing against the house. Every "speculation" is a financial transaction with someone else who holds a product (stock, bond, futures contract, etc.) who believes the reverse of what you do. The fact that you belief is essentially a bet (rather than an informed chance), and that your investment hasn't "produced" anything, doesn't mean you shouldn't be allowed to enter into the transaction. If your guess is wrong, and you're investing money that's essentially not yours, you deserve to face either criminal or civil penalties, or to be fired for incompetence.

[Romulox]

13. Major flaw in your theory: those "bets" are implicitly guaranteed by the US Treasury.

I love how "moral hazard" is the first term taught in Economics 101, and then similarly, the first forgotten! Do remember the trillions and trillions of dollars of government bailouts (many still unpaid!) next time you intone about "free markets", will you? :hi: