Futures Hedging. You can use futures hedging to protect yourself, regardless of whether you are a speculator, producer or manufacturer.
The 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 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.
Speculators 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.