Most importantly, futures markets provide a medium where large-scale producers, processors, and end users of commodities can hedge their price risks. Trading Participants Speculators play a vital part in creating efficient commodity trading. By acting in their own interests they increase the number of bids and offers and improve liquidity. This means there will be a minimum of price fluctuation from buy or sell orders. Speculators voluntarily assume substantial risk from producers who are then able to operate more efficiently and with lower costs by having hedged.
Speculators are typically interested in making a profit from price volatility.
These locals are individuals who own or rent their own seats on the exchange floor and trade for their own accounts. Hedgers perform the opposite role of speculators in the futures market. Instead of taking risks, the hedger desires to minimise the risk of loss from price changes inherent in owning the commodity over a period of time. As mentioned earlier, a futures contract is an agreement between two parties to conduct a cash transaction in a specific commodity at an agreed price at some future time. Because of this it is possible for each party to make an offsetting futures transaction later in time without having to locate the original second party in the trade.