Posts Tagged ‘futures traders’
May 31st, 2010 | Author: FTrader
To answer the question of who trades futures, you need to consider the scale and types of futures involved. From the basic point of view though, there are two types of entities that enter futures trading.
- Hedgers. Hedgers are the people who are relying on low price fluctuations. Their position is one that seeks a stable income regardless of actual outcome – basically, they want to make their cash flow predictable and thus make in-depth planning possible. Generally, hedgers are the persons who have interests in the commodities, such as producers, cooperatives, et cetera.
- Speculators. Speculators are basically the people who want to capitalize off of price changes, making educated gambles with their money. Speculators cover a more generic lot of investors, who usually do not have practical use for receiving or delivering the underlying asset.
For soft and hard commodities (agricultural and mined products respectively), the futures traders include cooperatives and bodies representing the interests of smaller companies. For these traders, the value of futures trading is two-fold.
As sellers, they can assure themselves of a stable amount of income based on today’s prices, such that they will not suffer as badly from price drops. As buyers, they can also make a profit, as the futures they buy today can become more valuable should demand outstrip supply and cause prices to rise.
For non-producers, the main interest is to make money off of the market movements. When buying, you want to buy when it is cheap, and make a profit when the price rises and the contract reaches maturity. For sellers, you will want to have sold the products at current market prices, avoiding price drops, and deliver them upon the maturation of the contract.
Individuals can enter commodities markets, but for the most part individuals tend towards the foreign exchange market. Foreign exchange futures tend to be more accessible to the individual, since everyone has money. The trading unit sizes are not too large – say USD 10,000 – making it a little more reachable for the individual trader.
The bond market is also quite popular, since the assurance of payment is slightly better. As the opposite party in a bond exchange is usually a government, the individual can feel safer about whether or not he or she will get paid for the investment they put in.
