There are 4 types of speculators in a stock exchange. They are Bulls, Bears, Stags and Lame Ducks. They are briefly explained below.
A Bull is a speculator who anticipates rise in the price of securities. He buys securities with a view to sell them in future at a higher price and thereby earns profits. In case the prices of securities fall, he loses. He has the option to carry forward the transaction to the next settlement by paying a charge termed, ‘contango’.
In India, a bull is also known as tejiwala. He is said to be a bull because just like a bull which tries to throw its victim up in the air, he expects to profit from increase in share prices.
A Bear is a speculator, who anticipates fall in the price of securities. He sells- securities for future delivery. He sells securities which he does not possess with the hope to buy the securities at a lower price before the date of delivery. In India, a bear is also known as mandiwala.
A stag is bullish in nature. A stag applies for securities of a new company with the idea of selling them at a premium after allotment. His profit is the excess of the price at which he sells his allotment over the amount paid by him while applying. He expects that the prices of securities that he applies for would increase.
Let us assume Mr.X applies for 100 shares of Rs.10 each in ABC Ltd., In case he is allotted 100 shares and he sells it for Rs.15, his profit will be Rs.500 (100 x Rs.15 – 100 x Rs. 10).
The activity undertaken by a stag is not free from risk. The price of securities might decline after allotment. This situation can arise even in case of at par issues but happens mostly in case of issues which carry a high premium.
Let us assume Mr.X applies for 100 shares of Rs.10 each issued at Rs.140 premium by ABC Ltd and after allotment, the price declines to Rs.70, he would suffer a loss. His loss would be Rs.8,000 i.e., the difference between the amount realized from sale minus the amount paid on application (100 x Rs.150 — 100 x Rs.70). He would neither earn a profit not incur a loss if he is not allotted securities in a public issue because of over subscription.
4. Lame duck
This refers to the condition of a bear who is not able to meet his commitments. A bear sell securities which he does not hold, with the expectation that prices are going to fall. His intention is to buy them at a lower price later and profit from the difference. On the fixed date he may not be able to deliver the security as it may not be available in the market. The buyer may not be inclined to carry forward the transaction. In such a case, the bear is said to be struggling like a lame duck.