Fat 'n Happy the Rooster Trader Vic the Trading Rooster

Just Another Jim

Commodities Trading



What Is a Future's Speculator?

It's not just another job.

The futures markets exist to bring buyers and sellers of commodities and other goods together. It is an advantage to commodities producers to have the selling price for their goods set early in the process. Producers turn to the futures market to lock in prices for their products. This practice is called hedging. In other words, hedgers use the futures market to lock in profits.

For every seller (the hedger) there has to be a buyer. Speculators fill this role in futures markets. Speculators buy and sell futures contracts hoping to make a profit before the contracts expire.

Futures markets are necessary for producers who want to lock in profits so they can plan for the next season. Speculators make futures markets possible by providing the liquidity in those markets.

What is a futures speculator? The first answer is that the speculator is an integral part of the overall futures market. The speculator is the person who is willing to take the opposite side of a hedger's trade for the chance of a profit.

Commodities markets are often associated with gambling in people's minds. One can certainly gamble in the futures market, but trading is not gambling by nature. Markets move in an orderly manner. Certain markets are seasonal by nature, others are cyclical because they are part of the larger cycles of the economy. But most importantly, market moves are a result of people's expectations of what the future holds. In that sense, the markets are driven by greed and fear.

While markets cannot be precisely predicted, these cycles of societal attitudes strongly affect the markets. Therefore students of these cycles and cultural attitudes can develop a reliable sense of market direction. It is this understanding of society and cycles that is at the heart of being a successful speculator.

What is a futures speculator? The second answer (put in negative terms) is that a speculator is not a gambler; and if they are, they will go broke in a hurry. Put in positive terms, the speculator is a student of societal attitudes and expectations as well as technical patterns and fundamental market conditions. The speculator then uses these talents and tools to make a profit.