Course forex - Basic Training/Getting (4)

You Could Win or Lose
Futures are ideal hedges against rising or falling prices. The essence of the futures market vehicle is, its use as a tool by which the producer and end-user can hedge or protect profits. Of course, you have the option of doing nothing, hoping that corn will be much higher at some point in the future. If the price is lower, then you are fortunate to have sold prior to the decline. If the cash market is higher by the time the crop is ready, you will not make as much as you might have.

What’s in it for the Players?
Why will they sell it if they change their mind? In other words: Who will buy the grain from you? Who takes the other side of the futures transaction and why?

The Three Categories of “Players” in the Futures Game and their Roles.
Producers
Thus, they have profited from the futures sale. Finally, they may choose to sell futures contracts of silver and/or gold in expectation of the decline. They may do this in order to guarantee a profit on an item in order to guarantee a profit on an actual commodity they have a product they want to lock in a price on an item in order to guarantee a profit on an item in order to avoid losing more money on it if it is already declining. For example, a jewelry store with considerable gold and silver jewelry on hand or have produced, or they may want to sell at a determined price. Rather they may be protecting themselves from a possible side effect of declining or rising prices. Whether it be silver, gold, petroleum, corn, live cattle, lumber, sugar or currencies, these are the people who make the goods at all. These individuals and/or firms actually produce or process the commodity that is being traded.
End-Users
As you can see, roles in futures trading can change. In such an event, the end-user may become a seller as opposed to a seller. Assume, for example, that too much has been purchased or that the final product is not selling well. In such an event, the end-user may become a buyer as opposed to a buyer. Assume, for example, that too much has been purchased or that the final product is not selling well. The producer may then become a buyer as opposed to a buyer. At times, the end-user may switch to the sell side. Therefore, they will buy either on the futures market or they may make a forward contract (previously defined). They need to lock in the cost of their production by advance purchase of raw goods. These are the people who will use the stuff that’s sold by producers.
Speculators
More details will be given as your understanding of basic concepts increases. The chart below shows the general relationship between the three basic groups of market participants. Speculators do this in expectation of large percentage profit returns on price fluctuations. Suffice it to say that speculators are often willing to take risks in markets at times and at prices that may not be attractive to the other two groups. The balance is closed out before any actual exchange of goods occurs. Perhaps no more than one to three percent of all futures contracts is actually completed by delivery. The chart below shows the general relationship between the end-user and the producer, providing a market buffer. Speculators do this in expectation of large percentage profit returns on price fluctuations. Suffice it to say that speculators are often willing to take risks in markets at times and at prices that may not be attractive to the other two groups. The balance is closed out before any actual exchange of goods occurs. Perhaps no more than one to three percent of all futures contracts is actually completed by delivery. These people are sandwiched between the end-user and the producer, providing a market buffer. This is the largest group of futures traders.