Which one of the following statements about speculators in futures markets is correct?
A) Their main aim is to reduce their exposure to risk.
B) They make it difficult for hedgers to find someone to take the opposite position.
C) They aid hedgers by adding to the liquidity in the markets.
D) Once a trader is known as a speculator they are no longer allowed to participate in the markets.

Question

Quizplus · Accepted Answer

Speculators add to the liquidity in futures markets and can actually assist hedgers in finding someone to take the opposite position. Hedgers use the futures market to manage risk, and speculators help ensure that hedgers are always able to find buyers or sellers when they need them. Option A is incorrect because speculators are typically comfortable with risk and are actually taking on risk to make a profit. Option B is incorrect because speculators provide liquidity and do not typically make it harder for hedgers to execute trades. Option D is incorrect because speculators are allowed to participate in futures markets, and they play an important role in helping these markets function efficiently.

Which One of the Following Statements About Speculators in Futures