What is the difference between hedging and speculation?
Hedgers and speculators have different goals. Hedgers use the futures markets to help stabilize revenues or costs because they have an offsetting position in the physical market. They do not necessarily seek to profit in the futures markets because a gain or loss in the futures market is usually offset to some degree by the corresponding loss or gain in the physical market. Speculators, or investors, on the other hand, enter the market in order to profit from market volatility and the movement of futures prices because they have no offsetting physical positions. Speculators play a valuable role in assuming the risk of market losses that hedgers are seeking to shift, as well in providing liquidity and narrowing the gap between bids and offers that benefits the markets as a whole.
