Speculators in the futures market typically:

Speculators in the futures market typically:

• A. Accept the price risk the hedgers are seeking to avoid
• B. Hedge against price changes
• C. Ensure delivery of goods
• D. Are always price takers

Answer: (A)

Speculators take on price risk in the futures market in order to profit from expected price movements, providing liquidity and aiding price discovery. Hedgers—like farmers or processors—use futures to protect themselves from adverse price changes by transferring that risk away from their business. Because hedgers want to avoid price risk, speculators typically absorb that risk, making the statement that speculators accept the price risk hedgers are seeking to avoid the best description. They are not primarily there to hedge against price changes themselves; their aim is to profit from fluctuations. They do not ensure delivery, since most futures are settled financially or offset before delivery. And they are not necessarily price takers; their activity is driven by expectations of price movement to earn a profit.

Speculators take on price risk in the futures market in order to profit from expected price movements, providing liquidity and aiding price discovery. Hedgers—like farmers or processors—use futures to protect themselves from adverse price changes by transferring that risk away from their business. Because hedgers want to avoid price risk, speculators typically absorb that risk, making the statement that speculators accept the price risk hedgers are seeking to avoid the best description. They are not primarily there to hedge against price changes themselves; their aim is to profit from fluctuations. They do not ensure delivery, since most futures are settled financially or offset before delivery. And they are not necessarily price takers; their activity is driven by expectations of price movement to earn a profit.