Today, there are so many people involved in futures trading. What we understand about it in layman’s language is that it is a type of trading which involved commodities. The people involved in this type of trading speculate the price of a particular commodity. They can choose to speculate that the prices will rise or the prices will fall. The profit or loss depends on whether their speculation matches the actual result or not. The interesting part is that no one is actually buying or selling the commodities here. Buying a commodity means that the price will raise as per the buyer and selling a commodity means that the seller predicts that the prices will fall. There are contracts with specific quantity and quality mentioned on them. There are mainly two types of people involved in Futures trading. One is hedger and the other one is speculator. Let us learn more about them:

Hedgers: Who are hedgers? The concept of futures trading started when farmers complained that because of price fluctuation results in a lot of losses for them. Hence, the ain purpose of this kind of trade is to provide an effective mechanism to commodity producers to manage their risks. Futures contacts actually give a price level for the commodities produced. With the help of these price levels, now the producers can actually get insurance done in case anything goes against the prices. This helps them cover their loss risk. This price level can be set anytime before the delivery of actual commodity. It can be done days, weeks and even months in advance depending on the market and commodities. This helps the hedgers to avoid getting in to drastic price change scenarios. This kind of trade helps hedgers to protect themselves from any type of drastic price change in future.

The second term we need to understand is Speculators.

Speculators: They are mainly private investors who are ready take up risks in order to earn profits. These people do not actually buy or sell the commodities nor do they have any intention to do so. Their sole motive in getting involved in futures trading is to get profit from the change in price. They buy when they think the prices of a particular commodity will go up in future and they sell if they think that the prices of a particular commodity will go down in future. With this simple rule, speculators invest their money in the market. There are different terms to denote this. If an investor buys a contract it is known as going long and if an investor sells a contract then it is known as going short. The meaning is simple, going long means that the prices will go up and going short means that the prices will go down. There are professional trading advisors in the market, who can be hired for professional advice. However there are many private investors who invest money on the basis of self study of market and trends and their own knowledge.

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