Who are the players in the commodity market?
Investors in the commodities market fall into the following categories: • Hedgers: Hedgers enter into commodity contracts to be assured access to a commodity, or the ability to sell it, at a guaranteed price. They use futures to protect themselves against unanticipated fluctuations in the commodity’s price. • Speculators: Speculators are participants who wish to bet on future movements in the price of an asset. Individuals, willing to absorb risk, trade in commodity futures as speculators. Speculating in commodity futures is not for people who are averse to risk. Unforeseen forces like weather can affect supply and demand, and send commodity prices up or down very rapidly. As a result of this leveraged speculative position, they increase the potential for large gains as well as large losses. • Arbitrageur: A type of investor who attempts to profit from price inefficiencies in the market by making simultaneous trades that offset each other and capture risk-free profits.
