The activities of speculators are necessary in the futures markets in order to:
A) prevent hedgers from trading options.
B) provide a continual stream of profit to hedgers.
C) help ensure futures prices are fair value.
D) understand the direction of future price changes.

Question

Quizplus · Accepted Answer

Speculators play a crucial role in ensuring that futures prices are at fair value by buying or selling futures contracts based on their expectations of future price movements. This helps to keep the market liquid and also provides hedgers with a counterparty for their trades. Hedgers use futures contracts to manage their price risks and ensure stable income, and without speculators, there would not be enough liquidity, which would make it harder for hedgers to execute their trades. Speculators can also help to provide valuable price discovery information to the market, which can help all participants to better understand the direction of future price changes.

The Activities of Speculators Are Necessary in the Futures Markets