To alleviate some of that concern, they seek price protection by hedging the commodity. Farmers hedge the price of their crops against the price going down. Heating oil distributors hedge the value of their heating oil inventory. Speculators in the futures markets fulfill several vital economic functions by facilitating the marketing of basic commodities and the trading in financial instruments. In addition to assuming risk, providing liquidity and capital, speculators help ensure the stability of the market.
Speculators trade in the futures markets to profit from price fluctuations.
The price of grain, for example, changes along with supply and demand. Plentiful supplies at harvest time usually means a lower price for grain. Higher prices may result from such things as adverse weather conditions during the growing season or an unexpected increase in export demand. Financial instruments fluctuate in price due to changes in interest rates and various economic and political factors. When speculating in the futures markets , both profits and losses are possible - just as in owning the actual, physical commodity.