Investors looking to trade derivatives products such as futures and options typically fall into one of two categories: speculating or hedging.
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Investment Services : Commodity Futures & Options
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Speculating & Hedging
Investors looking to trade derivatives products such as futures and options typically fall into one of two categories: speculating or hedging.
Speculators are investors who do not take delivery of the underlying commodity being traded. Instead, speculators try to maximize profits when anticipating changes in market prices. To do this, speculators either buy futures contracts or options they expect to rise in price or sell futures contracts and options they expect to fall in price. Speculators are essentially trying to profit from spot market commodity price volatility.
For example, a speculator's goal is to buy contracts and then sell them back to the exchange at a higher (contract) price than that at which they were purchased. Conversely, a speculator's goal is also to sell contracts and buy them back at a lower (contract) price than they were sold. In either case, if successful, a profit is made.
Hedgers are generally businesses or individuals who typically deal in the commodity underlying the futures contract. Hedgers use futures and options to offset the effects of adverse price movements in the underlying commodity, and to minimize the unwanted risk. Often, this means a hedger will buy or sell in the futures market to secure the future price of the commodity that is intended to be bought or sold at a later date, protecting against price risks. The ability to take or make delivery allows hedgers to transfer their risk.
Commodities trading can involve significant financial risk and is not suitable for all investors.
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