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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: derivative contracts: speculative instruments

Speculative instruments

Holding derivatives for speculative purposes is relatively uncommon. The most common purpose for holding derivatives is to manage some form of risk faced by a business. However, businesses will sometimes wish to gain exposure to some form of risk for speculative purposes, or may be left with a naked derivative exposure when the underlying hedged item in a hedging transaction is realised/derecognised, and the hedging derivative continues to be held.

Under IFRS, New UK GAAP and FRS 26 under Old UK GAAP, speculative derivatives are normally measured at fair value, with gains and losses recognised in profit and loss. Note that holding speculative derivatives under Old UK GAAP would normally bring a reporting entity within the scope of FRS 26, and this would typically require such derivatives to be measured at fair value through profit or loss.