The purpose of futures trading
Futures trading has two purposes, one is to make profits through speculation, and the other is to hedge.
1. Speculation
Definition: futures trading behavior in the futures market for the purpose of obtaining differential income.
Specific practice: investors keep buying or selling futures contracts according to their own judgment on the changes of futures prices, and obtain higher profits through the price difference.
Step 2 hedge
Definition: futures trading behavior with the main purpose of avoiding spot price risk.
Specific practices: producers, businessmen or consumers conduct a transaction with exactly the same variety and quantity but opposite positions in the futures market, that is, they buy (or sell) a certain commodity in the spot market and sell (or buy) futures contracts of the same and equivalent commodities in the futures market to offset or limit the risks brought by spot price fluctuations. The purpose of hedging is not to make a profit, but to hedge.
According to the forms of hedging, hedging can be divided into buying hedging and selling hedging.
Types of futures trading
1. According to the different objects of futures contracts, futures trading can be divided into commodity futures trading and financial futures trading.
2. According to different participants in the futures market, futures trading can be divided into different subjects such as futures exchanges, futures dealers, futures investors or futures traders.
3. According to the different motives and purposes of futures investors buying and selling futures contracts, futures trading can be divided into hedging trading and speculative trading.