Activtrades – Who trades futures?
Futures Activ Trades are usually place in one of two categories; the first are speculators, who aim to profit from their predictions on market moves, and by opening up derivative contracts which are only related to the asset ‘on paper’, meaning that they have no practical use. In other words, the speculator is seeking exposure to the asset n a long futures contract. Speculators will typically fall into three groups; swing traders, day Activtrades and position traders, although there are many which work within more than one of these types of trading. Speculators make their money when they offset futures contracts to their advantage. In order to do this, the speculator will purchase contracts, and then sell them back at a high cost than what they paid. Conversely, they will sometimes sell contracts and purchase them back at a reduced price than what they sold them for. . The second category are hedgers, who are interested in the underlying asset (such as the interest rate or an index), and are hoping to ‘hedge’ out the risk of change in price. Hedgers generally include both the producers as well as the consumers of a commodity, or alternatively, the owner of assets which are subject to certain influences (for instance, interest rates). An example of hedging in a traditional commodity market would be when farmers sell futures contracts for livestock and crops they produce, in order to guarantee a certain price. Similarly those who breed livestock will often buy futures so as to cover the costs of feed, as this allows them to plan their budget with a fixed cost for feeding the animals. In financial markets, the ‘producer’ of equity
derivative products or interest rate swaps will make use of equity index futures, or financial futures, in order to either eliminate or reduce the risk on a swap.