Stag

A stage is a premium hunter. He does not buy or sell securities in the market. He applies for shares in the new issue market just like a genuine investor. He expects that the price of shares will soon increase and the shares can be sold for a premium. A stag, like a bull, always expects a rise in price. When he gets an allotment of his shares, he sells them thereby taking advantage of the rise in price of shares.
The stag may not be able to make any profit if the public response is not good. In that case, he may have to acquire all the shares allotted to him and sell them even at a lower price than he purchased, in which case he meets with a loss.
Advantages

Healthy and scientific speculation is always beneficial. The following are certain useful advantages related to speculation:

1. Speculation increases the liquidity and marketability of securities.
2. It reduces violent fluctuations in prices of securities.
3. It equalizes prices in different markets as the speculators influence the demand and supply of securities in different markets through their buying and selling operations.
4. The speculators bear risks of price changes.
5. Savings and credit resources are mobilized for the financing of enterprise their promotion stage. Through bank loans on securities, the speculators obtain funds and use them to purchase such speculative issues, safeguarding the banks against loss.

Thus, an intelligent and legitimate speculation helps the growth of a healthy capital market. Speculation is healthy and legitimate when it is carried on by persons who are well informed, intelligent, scrupulous, have requisite finance and carry on business strictly according to the rules and regulations of the stock exchange.

Disadvantages

Speculation has the following disadvantages:

(i) It causes violent fluctuation in the prices of securities which will increase the risk of the investors.
(ii) Loss due to unsuccessful speculation tends to discourage saving.
(iii) It sometimes damages the credit-worthiness of the company.
(iv) The management is tempted to use their inside knowledge for personal