In order for a derivatives market to function two kind of economic agents are required: hedgers & speculators. Describe.
Two kinds of market participants are essential for the operation of a derivatives market: speculators & hedgers. A speculator tries to profit from a change in the futures price. To perform this, the speculator will take a long or short position in futures contract based upon his expectations of future price movement. A hedger, conversely, desires to ignore price variation by locking in a purchase price of the underlying asset through a long position in a futures contract or a sales price through a short position. Effectively, the hedger passes off the risk of price variation to the speculator who is better capable, or at least more keen, to bear this risk.