Speculation means that enterprises buy transactional financial assets and pursue profits from short-term price fluctuations through regular transactions. Enterprises usually take advantage of market price fluctuations to trade by buying low and selling high, from which they can obtain the difference profit.
Hedging means that enterprises hold a certain number of tradable financial assets and trade a corresponding number of futures or other derivatives in order to avoid or mitigate market risks.
Through hedging, enterprises can lock in or avoid the risks brought by future price fluctuations and ensure the stability of income or cost.
In accounting standards, trading financial assets for the purpose of speculation need to be accounted according to the accounting method of trading financial assets, that is, their profits and losses should be measured and confirmed according to fair value; Trading financial assets for hedging purposes need to be accounted for according to hedging criteria, that is, their gains and losses are confirmed through hedging-related risk exposure.
What are transactional financial assets?
Transactional financial assets refer to financial instruments that enterprises pursue profits by actively managing and trading debt securities and equity securities. Enterprises will buy and sell these securities frequently and profit from short-term price changes. This kind of financial assets are usually used for speculation, that is, to earn the difference profit in the market price fluctuation.