Why Is Speculation Considered a Higher-Risk Activity than Hedging?

Speculation is considered higher-risk than hedging because it involves taking on new risk in pursuit of profit, rather than mitigating existing risk. Speculators are essentially betting on future price movements, and if their predictions are wrong, they can incur significant losses.

Hedging, on the other hand, is a defensive strategy designed to protect against losses. While a hedge might limit potential gains, its primary purpose is to reduce the downside risk of an existing position.