Who uses derivatives products and why?
Broadly speaking there are two classes of traders in derivatives markets. First are “hedgers” who have existing risks in the market for the underlying commodity or financial asset, such as producers, processors, merchants, banks, mutual funds and insurance companies. They can use a derivative product by taking an opposite derivatives position to that which they hold, or expect to hold, in the underlying market, thereby reducing their exposure to the risk of adverse price movement in the underlying asset. Second are “investors” who are prepared to bear the price risk that hedgers are seeking to avoid and to profit by correctly anticipating the nature of future price movement.
