Chapter 2. Hedging Versus Speculating
As discussed in Chapter 1, “A Crash Course in Commodities,” the futures markets were created to facilitate commodity transactions and provide producers and end users the means to hedge price risk. In its simplest form, hedging is the basic practice of shifting price risk to a party that is willing to accept it, the speculator. I’m not going to cover hedging concepts in detail simply because a large majority of market participants are speculators. Therefore, being aware of the overall concept and its implications in the marketplace should provide a sufficient background for beginning traders.
The futures markets were created for hedgers but are made possible by speculators.
Commodity Hedgers
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