Who am I trading against?

Understanding trader classification and hedging intent

This is an easy finance question that tests whether you can distinguish between speculation and hedging in futures markets. It's a foundational concept in derivatives and risk management that interviewers use to confirm you grasp why different participants enter the same market.

The question requires you to classify market participants based on their primary motivation: are they taking on directional risk to profit from price moves, or are they using derivatives to offset an existing exposure? Understanding this classification matters because it shapes how you think about liquidity, counterparty intent, and the economic role of futures markets.

• Speculation versus hedging as distinct motivations
• Commercial versus non-commercial participants
• Basis risk and natural offsetting in commodity markets