HEDGING is the practice of using the futures market for price protection involving the offsetting of price-change risk in any cash market position by taking an equal, but opposite position in the futures market. For example, a farmer may use futures or options to establish the price for his crop long before he harvests it. VARIOUS factors affect the supply and demand for that crop, causing prices to rise and fall over the growing season. The farmer can watch the prices discovered in TRADING at the CBOT®and, when they reflect the price he wants, will sell futures contracts to assure him of a fixed price for his crop.

Speculating is the practice of BUYING and selling futures contracts and options to make a profit. A speculator will buy and sell in anticipation of future price movements, but has no desire to actually own the physical commodity. Speculators, thus, assume market price risk and add liquidity and CAPITAL to the futures markets.

Hedging is the practice of using the futures market for price protection involving the offsetting of price-change risk in any cash market position by taking an equal, but opposite position in the futures market. For example, a farmer may use futures or options to establish the price for his crop long before he harvests it. Various factors affect the supply and demand for that crop, causing prices to rise and fall over the growing season. The farmer can watch the prices discovered in trading at the CBOT®and, when they reflect the price he wants, will sell futures contracts to assure him of a fixed price for his crop.

Speculating is the practice of buying and selling futures contracts and options to make a profit. A speculator will buy and sell in anticipation of future price movements, but has no desire to actually own the physical commodity. Speculators, thus, assume market price risk and add liquidity and capital to the futures markets.