Who are Hedgers, Speculators and Arbitrageurs?
Hedgers wish to eliminate or reduce the price risk to which they are already exposed. Speculators are those class of investors who willingly take price risks to profit from price changes in the underlying. Arbitrageurs profit from price differential existing in two markets by simultaneously operating in two different markets. All class of investors are required for a healthy functioning of the market. Hedgers and investors provide the economic substance to any financial market. Without them the markets would lose their purpose and become mere tools of gambling. Speculators provide liquidity and depth to the market. Arbitrageurs bring price uniformity and help price discovery.
