Players in the Futures Market
Players in the futures
market fall into two categories; hedgers and speculators. Manufacturers, importers, exporters and farmers can all be hedgers. A hedger buys or sells in the futures market to secure the future price of a commodity that is intended to be sold at a later date in the cash market. This helps protect against price risks.
Buyers of the commodity, holders of the long position in futures contracts, are trying to secure as low a price as possible. Sellers of the commodity, the short holders of the contract, will want to secure as high a price as possible. The futures contract, however, provides a definite price certainty for both parties, which reduces the risks associated with price volatility. Hedging by means of futures contracts can also be used as a means to lock in an acceptable price margin between the cost of the raw material and the retail cost of the final product sold.
The speculators goal is not to minimize risk, but to benefit from the inherently risky nature of the futures market. They aim to profit from the very price change that hedgers are protecting themselves against. Hedgers want to minimize their risk no matter what they're investing in, while speculators want to increase their risk and therefore maximize their profits.
In the futures market, a speculator buying a contract low in order to sell high in the future would most likely be buying that contract from a hedger selling a contract low in anticipation of declining prices in the future. Unlike the hedger, the speculator does not actually seek to own the commodity in question. Rather, he or she will enter the market seeking profits by offsetting rising and declining prices through the buying and selling of contracts.
In a fast-paced market where information is continuously being fed, speculators and hedgers bounce off of, and benefit from, each other. The closer it gets to the contract's expiration time, the more solid the information entering the market will be regarding the commodity in question. Therefore all can expect a more accurate reflection of supply and demand, and the corresponding price. Search
Cnn/Money for more investing info.
Players in the Futures Market
Players in the futures
market fall into two categories; hedgers and speculators. Manufacturers, importers, exporters and farmers can all be hedgers. A hedger buys or sells in the futures market to secure the future price of a commodity that is intended to be sold at a later date in the cash market. This helps protect against price risks.
Buyers of the commodity, holders of the long position in futures contracts, are trying to secure as low a price as possible. Sellers of the commodity, the short holders of the contract, will want to secure as high a price as possible. The futures contract, however, provides a definite price certainty for both parties, which reduces the risks associated with price volatility. Hedging by means of futures contracts can also be used as a means to lock in an acceptable price margin between the cost of the raw material and the retail cost of the final product sold.
The speculators goal is not to minimize risk, but to benefit from the inherently risky nature of the futures market. They aim to profit from the very price change that hedgers are protecting themselves against. Hedgers want to minimize their risk no matter what they're investing in, while speculators want to increase their risk and therefore maximize their profits.
In the futures market, a speculator buying a contract low in order to sell high in the future would most likely be buying that contract from a hedger selling a contract low in anticipation of declining prices in the future. Unlike the hedger, the speculator does not actually seek to own the commodity in question. Rather, he or she will enter the market seeking profits by offsetting rising and declining prices through the buying and selling of contracts.
In a fast-paced market where information is continuously being fed, speculators and hedgers bounce off of, and benefit from, each other. The closer it gets to the contract's expiration time, the more solid the information entering the market will be regarding the commodity in question. Therefore all can expect a more accurate reflection of supply and demand, and the corresponding price. Search around
CNNMoney as a source for investing information.
