Participants in futures are either hedgers or speculators.
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Hedgers seek to reduce price uncertainty over some future period.
For example, by purchasing a coffee contract, the coffeeshop owner can hedge and lock in a specific buying price for coffee and be protected from any price increases.
Similarly, sellers can protect themselves from downward price movements too.
The coffee farmer might sell a coffee future contract to hedge against a fall in coffee prices.
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Speculators, on the other hand, seek to profit from the uncertainty that will occur in the future.
If they expect prices to rise, contracts will be purchased, and if they expected prices to fall, they would sell contracts.
Ref: Make Your Money Work For You, by Keon Chee & Ben Fok
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
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