The futures market are traded by two kinds of traders. These are the speculators and the hedgers. They trade on the Bitcoin Code as well.
Hedgers in the futures market
The hedgers use the futures contract in order to protect their business from massive price volatility. They lock in a favorable price of the materials that they would need in order to run their business. This is beneficial and lets them plan their revenue well in advance and saves them for any surprises. The valuation of the futures market and the cash prices of the raw materials move in the same direction and this lets the business hedge their risks by buying the futures contract for their needs of the raw materials.
Take for example an owner of an apple juice company who expects that the weather would be bad causing a rise in the price of apples. He thus makes use of the futures contract in order to hedge his position. Any gain or loss that happens in the futures position that he has taken offsets the gains or the losses that are seen in the market price of apples. The position is not taken to profit from the position in the futures contract. The hedgers make a major part of the futures market and the decision that they take has an impact on the market prices of apples. It is thus important that when you trade in the futures market you pay close attention to what the hedgers are doing.
Speculators in the futures market
These are investors who are not into any business related to the commodity but they want to make money from the price volatility in the futures market. They make use of some basic advantage of trading in the futures market. Price in futures are volatile and this lets them benefit from the price volatility.
Another important reason why traders trade in the futures market is that they can make use of the leverage that the futures market offers to them. This helps them to maximize their size and the position that they can take. Leverage helps to increase the profits but also increases the losses so it is important that one uses the leverage with a lot of care. Leverage is a powerful tool and this helps to enhance the gains if used properly.
Speculators vs hedgers
The hedger is playing on both the sides of the market to protect himself from any sudden shocks that could impact his revenue. The speculators take an added risk because they play only on one side of the market to take benefit of the volatility in prices. This means that the speculators need to trade more carefully because they trade with little protection.