Futures Trading 101 Are You A Hedger or a Speculator? When it comes to trading on the futures market there are two type of players. The hedgers and the speculators. Each one plays the game a little differently. Below we will discuss how hedgers and speculators trade on the futures market. Use this information to determine which type of futures trader you want to be. Hedgers By definition, a hedger is someone who buys or sells in the futures market with the sole purpose of securing the future price of a commodity. The intention is always to sell the commodity in the near future on the cash market. When done this way you are better protected against price risks. The buyers of the commodity, which are the holders of the long position, are trying to secure the lowest price possible. The sellers of the commodity, referred to as the short holders, are doing the opposite of the buyer. Instead of trying to secure the lowest price possible, they are trying to secure the highest price possible. Both parties are provided with a definite price certainty through the futures contract. This helps reduce the risks that are often associated with price volatility. Hedging can also be used to lock in the best possible price margin between raw materials cost and the final cost of the product being sold. Speculators Unlike hedgers, speculators focus on benefiting from the risks rather than minimizing them. Their goal is to profit from the price changes while hedgers are trying to protect themselves from it. No matter what the investment is, a hedger is always looking to minimize their risk. Speculators on the other hand seek to increase their risk so they can ultimately make more money. In the futures market speculators and hedgers do business together quite often. If a speculator decides to buy a contract low so it can be sold at a higher price in the future, chances are that contract will be purchased from a hedger. Speculators have no desire to own
the commodity being bought or sold. Instead they enter the market with one goal and that is to make a profit. The futures market is a very fast paced market. Things are constantly moving and changing in this type of market. Because of this both speculators and hedgers can benefit from each other. When a contract is about to expire, information entering the market will be more reliable. This results in a more accurate representation of supply and demand and the price that corresponds with the commodity in question. So what type of futures trader are you? No matter which type of trader you choose to be, make sure you understand the market in and out. That is the only way to ensure you make the most possible money. CLICK HERE to see how Chip Smith recently predicted the exact top and bottom dates of the stockmarket, WEEKS IN ADVANCE! ======================================================= How To Trade Futures ? 3 Different Approaches For You To Consider I am sure you have heard this a million times but it bears repeating. Futures trading is not for everyone. Before you decide to invest in the futures market, evaluate your risk level.
To be a successful futures trader you must have a solid understanding of the market and how it works. In order to do that you must invest time, research and attention. Are you willing to do that? Before opening a futures account be sure to speak with your broker and ask as many questions as you need to. Once you have decided you want to invest in the futures market, the next decision you must make is how you will do it. There are three different approaches you can take when investing in the futures market. I will briefly discuss each one below. Open a Managed Account A managed account is very similar to an equity account. With this type of account you will have a broker who legally has the power to trade on your behalf. Before opening the account you will agree upon conditions that must be followed. The broker will then make trades based on the conditions you agreed upon. If you aren't big on taking risks this may be the best option for you. A professional broker will likely have more knowledge and experience than you do. Because of this they will be able to make better trading decisions on your behalf. Please know any losses that occur will still be your responsibility. Since a professional broker will be making trades on your behalf, expect to pay an extra management fee. Do It Yourself As an investor you are free to make all of your trades on your own. However, this option is extremely risky. When you make your own trades you are responsible for everything. This includes analyzing the market, doing research, managing funds, maintaining margins and ordering trades just to name a few. It takes a great deal of time and attention to detail to successfully make trades on your own. Join a Commodity Pool The third option you have is to join a commodity pool. This option involves the smallest amount of risk. A commodity pool is similar to a mutual fund. It is basically a group of commodities you are able to invest in. There are no individual accounts. Your funds will be
combined with other investors funds and traded as one. The amount of money invested will directly affect the profits and losses. When you join a commodity pool you will also be able to invest in various types of commodities. There are also no margin calls which is a bonus. However, make sure you do plenty of research before joining a commodities pool. It absolutely must be managed by a skilled broker. Even though your risks are lower in a commodities pool, there are still risks that must be properly managed. A skilled broker will know how to do that. CLICK HERE to see how Chip Smith recently predicted the exact top and bottom dates of the stockmarket, WEEKS IN ADVANCE! ==============================================