Speculators absorb additional risk in futures markets as a result of the actions taken by
A) longs.
B) hedgers.
C) brokers.
D) shorts.

Question

Quizplus · Accepted Answer

Hedgers use futures markets to manage risk related to the price of an asset, such as a commodity or a currency. They take positions opposite those they hold in the physical market. On the other hand, speculators enter the futures market with the intention of profiting from price movements. By doing so, they are exposed to additional risks that they have to bear due to their speculative positions. Brokers facilitate transactions in the futures market but do not necessarily contribute to additional risk. Longs and shorts simply represent the two sides of a futures contract and do not have a direct impact on the risk incurred by speculators.

Speculators Absorb Additional Risk in Futures Markets as a Result