Commodity Traders and Future Value

The traders in commodity markets for different commodities are of two types:

  • One who like to leverage on the future value of such commodities by taking some risk on shoulders with a view of gaining out of future value, which may fall or rise according to the forecast.
  • The other traders of such commodities are such companies whose main business risk is associated with the fluctuation in future market value of the product/ commodity, but they simply try to bring down such a risk by hedging in such commodities, till their risk gets exhausted in main business line of operations.

For instance, the jewelers carrying large stocks of gold jewellery, may like to profit out of selling jewellery in the markets, but are always interested in bringing down their risk associated with carrying large inventory due to fluctuation in gold prices, by hedging the same in futures markets.

But their main objective always remains to make gains out of selling jewellery, and through hedging. Hedging is used by such people only as a tool to minimize their future risks.