What type of risk involves the potential for both loss and gain?

Speculative risk is characterized by the potential for both loss and gain. This type of risk occurs in situations where the outcome can result in either a positive financial outcome or a negative one. Common examples of speculative risk include investments in stocks, real estate, or business ventures. Since these situations involve uncertainty and the possibility of profit or loss, they stand in contrast to pure risk, which only involves the possibility of loss without any chance for gain.

In the context of risk management, understanding speculative risk is crucial for making informed decisions about investments and business practices. This knowledge allows individuals and organizations to weigh potential rewards against possible downsides, thus facilitating strategic planning and risk-taking that aligns with their overall goals.