Learn about Futures
- What is a Future?
- Elements of a Futures Contract
- Participants in the Futures Market
- The Hedger
- The Speculator
Participants in the Futures Market
Welcome to the third article in the Futures educational series. This article discusses the participants in the futures market and some of the benefits of trading futures.
Who Trades Futures?
There are two types of futures investors, the speculator and the hedger. The speculator looks to take advantage of price movements in the market. The speculative investor is typically risk-willing, taking positions in which there is a potential for large gains but that also carry the risk of large losses.
The hedger trades futures to neutralize the risk associated with other investments, and takes positions to reduce or avoid market exposure and vulnerability to future price movements in the underlying assets.
Why Trade Futures?
For the investor looking to diversify his/her portfolio, futures offer an exciting option, giving the opportunity-seeking investor access to a variety of alternative markets. Futures are highly liquid financial instruments, meaning that you can trade on tight spreads. The transaction costs for trading futures are generally low, the pricing is very transparent due the level of specificity found in the futures contract and the regulations imposed by the various exchanges. Online trading of futures offers swift order and trade execution and no counterparty risk as all transactions are handled through the exchange and the clearinghouses have a daily responsibility to ensure that all transactions and margins are conducted in an orderly manner.
