Although much time, effort and energy has gone into this brief overview of the commodities industry, please consult our brokers at Nautica Financial Corporation to help explain any questions you may have. We are a full-service commodity brokerage firm, and we pride ourselves in helping to explain the many nuances of the marketplace. Whichever you choose, we hope the information provided on the following pages will shed some useful light on the subject. Those who use the futures markets to transfer risk, such as farmers, are called hedgers. Speculators are those who assume the risk of a price change that hedgers seek to avoid.
Speculators seek the opportunity to profit.
When a speculator assumes price risk, this allows the hedger to concentrate on the more controllable aspects of his business, such as growing corn. Additional margin deposits may be required, depending on market fluctuations. Price changes adversely affecting the hedgers' physical position, such as the farmer's cornfield, can be offset by a comparable price change in the futures position. A primary economic function of the futures markets is hedging. Hedging is the buying and selling of futures contracts to offset the risks of changing prices in the cash markets, or where the commodities actually get bought and sold.