"Speculators play a useful role in an efficient market where prices adjust very quickly to new information. They are coolly rational individuals looking at the fundamental values of items, buying when prices are too low and helping lift these prices, and selling when prices are too high and helping to lower these prices. As a result, prices correctly transmit information about values which people can then use to make decisions. An efficient market will not be the source of economic disturbances. It can, however, transmit disturbances, and this alone would be enough to interest economists.

However, there are some who argue that financial markets are not efficient and do not always adjust to economic conditions. They argue that those trading in financial markets are not always calmly rational in the way that those who believe in efficient markets picture them. Rather traders can go on speculative binges, ignoring reality. An important reason people buy items in financial markets is in the hope of selling them at a profit. Thus trading in these markets involves not only an analysis of the fundamental value of an asset, but also an analysis of how other people will react. If people are confident that others will buy the item for more than they paid for it, then they will buy it even if it has little value to them"  »»» Click Here For More