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How are they used?

There are three different types of trading strategies:

  • Hedging: these contracts are a tool for managing price risk. Buyers and sellers can hedge spot market positions against adverse price movements, mitigating or eliminating market risk. Hedging entails taking a forward position that offsets an existing position and may be total or partial.
  • Speculation: here the idea is to take on market risk in order to generate a profit by correctly betting on future price trends.
  • Arbitrage: this strategy entails simultaneous trading in various instruments in order to leverage temporary price distortion.

The existence of market participants with differing trading interests in respect of these contracts bolsters market liquidity and efficiency.



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