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Futures HedgingFutures Hedging. You can use futures hedging to protect yourself, regardless of whether you are a speculator, producer or manufacturer. ProducersThe producers are the ones who actually produce the commodities that will be traded; they are the farmers and mining companies. As a producer, you can use futures to hedge against possible price declines, or to profit further from possible price increases. Futures trading thus allows them to lock in on the price of their produce. Producers expecting a decline will choose to sell futures contracts in order to protect themselves from a possible decline. Producers expecting a growth in prices may choose to buy futures contracts in order to profit from futures sales. End UsersEnd users are the people who actually use the goods produced by the producers. These would usually be manufacturers. As an end user, futures are a way to control your costs of production by minimizing fluctuations in the price of the raw commodities you need to purchase. Futures trading allow end users to lock in on the price of commodities, thus allowing them to control their production costs by trading in the futures market or by entering a forward contract. Should there be an inventory of commodities, the futures market would be a way for end users to sell excess commodities purchased. SpeculatorsSpeculators account for the largest group of futures traders. More often than not, less than three percent of all futures contracts are actually completed as deliveries. The balance is usually closed out before the actual exchange of goods occurs. Speculators trade futures primarily for profits by taking advantage of price fluctuations; hedging futures is slightly less important for speculators. Free Billion Dollar Income NewsletterSign up for the free Billion Dollar Newsletter. Filled with ideas and strategies on generating wealth, personal effectiveness, how to apply the law of attraction, how to make money online and more, this newsletter is a powerful way to start your week. Your email address will be kept confidential. Easily unsubscribe at any time. Sign up right here: Feel free to link to this page to share the information here
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