Who are the market participants?

Traders(Speculators), Hedgers and Arbitrageurs are the 3 types of market participants.
A market participant can play any of the above 3 roles based on the market scenario they are entering into.

They take positions in derivative contracts based on their prediction of the future movements in prices of the underlying assets.
Derivatives offer higher leverage, have lesser transaction costs than underlying and are quicker to execute in size as they are traded in high volumes.
These reasons make them preferable over the underlying itself.

They use derivatives to hedge and manage the risk associated with the prices of the underlying assets.

Hedgers include Banks, Financial Institutions and Corporations. They use derivatives to minimize their exposure market variables such as interest rates, share values, bond prices, currency exchange rates and commodity prices.
Arbitraging exploits the price difference in an entitity in 2 different market exchanges. This scenario is short lived since arbitrageurs would jump in on this opportunity to transact these price difference, thus reducing the price gap at the 2 different exchanges.


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