The futures and options exchanges are a central meeting place for the
purpose of trading in some necessary element that affects everyone. This
includes consumable commodities such as corn, crude oil, orange juice,
and the like. It also includes fi nancial instruments such as Treasury bonds,
currencies, stock indexes, and so on. Exchanges do not set prices; they
provide a place for price competition from all participants who choose
purpose of trading in some necessary element that affects everyone. This
includes consumable commodities such as corn, crude oil, orange juice,
and the like. It also includes fi nancial instruments such as Treasury bonds,
currencies, stock indexes, and so on. Exchanges do not set prices; they
provide a place for price competition from all participants who choose
to trade. Those who do not trade receive a benefi t intangibly by keeping
prices as fair to them in their daily life as possible. Membership to
the exchange is not a requirement to trade through the exchange. This
provides a way for anyone to exploit price competition for their personal
benefi t or to earn profi t from some perceived opportunity. There are two
kinds of market participants who are in direct competition with each
other. It is this competition that will create prices or cause them to move.
prices as fair to them in their daily life as possible. Membership to
the exchange is not a requirement to trade through the exchange. This
provides a way for anyone to exploit price competition for their personal
benefi t or to earn profi t from some perceived opportunity. There are two
kinds of market participants who are in direct competition with each
other. It is this competition that will create prices or cause them to move.
One participant is the speculator and the other is the hedger. The speculator
is attempting to take advantage of price movement solely for personal
profi t. He (or she) is taking the risk of price action, either for or
against him. The hedger is attempting to take advantage of price movement
for the purpose of reducing his production costs or to improve his
profi t margin when he markets his fi nal product. He is transferring his
risk to the speculator and assumes little or no risk of price action against
him. Should prices move in a direction that further reduces his beginning
cost of business (or further improves his profi t margin), he cannot take
advantage of that from the point he transferred his risk to the speculator.
The hedgers benefi t from the markets is a “ known ” permanent cost of
business. The speculators benefi t from the markets is an attempt to profi t.
is attempting to take advantage of price movement solely for personal
profi t. He (or she) is taking the risk of price action, either for or
against him. The hedger is attempting to take advantage of price movement
for the purpose of reducing his production costs or to improve his
profi t margin when he markets his fi nal product. He is transferring his
risk to the speculator and assumes little or no risk of price action against
him. Should prices move in a direction that further reduces his beginning
cost of business (or further improves his profi t margin), he cannot take
advantage of that from the point he transferred his risk to the speculator.
The hedgers benefi t from the markets is a “ known ” permanent cost of
business. The speculators benefi t from the markets is an attempt to profi t.
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