Who Participates in Commodities Markets?
There are two basic types of participants in commodities markets–hedgers and speculators. Hedgers seek to minimize and manage price risk, while speculators take on risk in the hope of making a profit. As an example of a hedger, you might be a large corn farmer wanting to sell your product at the highest possible price. However, unpredictable weather may create risk, as well as excess supply that could drive prices down. You could take a short position in corn futures, and if prices fall, you could then buy back the futures at a lower price than you previously had sold them. This would help you offset the loss from your cash crop and help minimize your risk. Of course, if prices rose, you’d lose money on the futures transaction, but the idea is to use futures as a hedge. A speculator—including individual investors and professionals such as hedge funds or managed futures traders, could take the opposite side of the hedger’s futures transaction. That participant would bear the risk that p
