People who trade futures can, in most cases, be very broadly classified as hedgers or speculators.

Hedgers
Hedgers are looking for some measure of price certainty. Commodity hedgers – people who trade agricultural products, energy products or metals, for example – typically are involved in commercial interests that either produce, process or utilize the commodity they are trading. Hedgers of financial futures are typically in businesses that depend upon interest rates, foreign exchange rates, or stock index levels, such as banking or pension fund management.

Cattle ranchers, for example, may fear that cattle prices will decline before they bring their animals to market. To protect themselves, they decide to sell futures on live cattle that will expire at approximately the same time they expect to deliver their cattle to the market, and at the price they are hoping to get in the cash market. If cattle prices do go down, the ranchers can still make money on their futures positions, that will hopefully offset the reduced price they receive for their cattle.

*Note:  The futures price is slightly higher than the cash price to accommodate costs of shipping and delivery of cattle.

Speculators
Speculators trade futures with the objective of making a profit by being on the right side of a price move. Since the prices of commodities and financial instruments tend to change frequently, at least in certain markets, trading opportunities can be numerous.

Speculators can be categorized into several broad groups: scalpers, day traders, position traders, arbitragers, and people seeking exposure to certain markets.  

Scalpers typically trade for a small profit on any single trade and therefore often trade continuously, seeking to make as many small gains as possible. In so doing, they create liquidity – the presence of enough people in the market so that market participants, notably hedgers, can buy and sell quickly and in large volume without substantially impacting prices. Scalpers’ frequent trades increase the trading possibilities available to others, and help provide the liquidity that is essential to the existence of futures markets.

Other speculators include day traders, who typically make one or two trades per day, and position traders, who tend to hold contracts for days, weeks or months, depending on market factors.

And finally, arbitragers are speculators who watch the relative value of multiple markets closely and step in to trade whenever momentary price discrepancies appear. By keeping prices in line for the same product trading on different exchanges, arbitragers lend stability to the price negotiation process.