Hedgers and Speculators

Hedgers and Speculators in the Futures Market

The primary function of any futures market is to provide a centralized marketplace for those who have an interest in buying or selling physical commodities at some time in the future. The metal futures market helps hedgers reduce the risk associated with adverse price movements in the cash market. Examples of hedgers include bank vaults, mines, manufacturers, and jewelers.

Hedgers take a position in the market that is the opposite of their physical position. Due to the price correlation between futures and the spot market, a gain in one market can offset losses in the other. For example, a jeweler who is fearful that they will pay higher prices for gold or silver would then buy a contract to lock in a guaranteed price. If the market price for gold or silver goes up, they will have to pay higher prices for gold/silver.

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