Participants
Followings are the Participants in Derivatives markets.
- Hedgers
- Speculators
- Day-traders/ scalpers
- Arbitrageurs.
Hedger: A hedger is a person who enters into a futures contract to manage the risk of adverse price fluctuation in respect of his existing or future asset. Hedgers are those who have an underlying interest in the commodity and are using futures market to insure themselves against adverse price fluctuations. Examples could be stockists, exporters, producers, etc.
Speculators: A trader, who trades or takes a position without having exposure in the physical market, with the sole intention of earning profit is a speculator. Speculators are those who may not have an interest in the ready contracts, etc. but see an opportunity of price movement favorable to them. They are prepared to assume the risks, which the hedgers are trying to cover in the futures market. They provide depth and liquidity to the market. They provide a useful economic function and are an integral part of the futures market. It would not be wrong to say that in absence of speculators the market will not be liquid and may at times collapse.
Day traders: Day traders take positions in futures or options contracts and liquidate them prior to the close of the same trading day.
