Futures participants fall into two broad categories: speculators and hedgers. If
you trade for your own financial benefit, you are engaged in futures speculation and a speculator. If you trade futures because you have some risk associated with the underlying commodity, you’re a
hedger. Below is a quick characteristics of a Speculator
Speculators
A speculator’s job is easily defined: Buy low, sell high. Or sell high, buy low.
Make money. Speculators come in all shapes and sizes with all sorts of motivations. As any futures exchange will tell you, speculators are the grease that
keeps the market wheels turning. Even today, all futures markets exist because
of the economic necessity of providing commercial entities a way to transfer
risk, just as they did in the 1800s when grain producers and users needed to buy
and sell in Chicago. But speculators play a vital role in the markets’ success.
These speculators include:
• Professional traders trading off computer screens
• Investors who see futures as a way to try to make money.
• Money managers who invest on behalf of their clients.
• Firms that trade with their own money as a business venture.
Big, small, individual, or corporate, all speculators try to capitalize on their
opinion of whether the market is going to go up or down. The diversity of opinion
among speculators, and their sheer number, provides the liquidity that hedgers
need to transfer their commercial risks to others. The more speculators there are,
the more likely there will be someone who is willing to buy or sell at any particular
moment at any particular price.
For the most part, it’s safe to assume that individual speculators trade a
smaller number of contracts than hedgers and hold market positions for a shorter
time. Exchange rules and federal regulations limit the maximum number of contracts that can be held by any one speculator in any one market.
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