Futures Contracts

Like options, futures contracts offer alternative investment possibilities. Futures contracts can be used to increase risk and return and to decrease risk and return. The level of risk or return will depend on whether the future contracts are used for hedging or for speculating. In this discussion, respond to the following points:

1) Why do farmers and other users of commodity futures hedge their position?

2) If you were a farmer, would you invest in commodity futures?

3) If you were a major purchaser of a particular commodity, would you invest in commodity futures?

4) Describe the difference between hedging and speculating in financial and commodity futures?