• Food processors who need protection against increasing raw material costs or against

decreasing inventory levels (as low inventory may impact their production operations).
• Exporters who need protection against price increases for those goods on which they have
export obligations but are yet to procure from the domestic market.
• Importers who need protection against price drops in the domestic market for the goods
on which they have import obligations (i.e., pre-agreed to import from their vendors in other
markets).
SEBI has recently allowed foreign eligible entities to hedge their positions in commodity
derivatives, if they have open positions in commodities (i.e., in the underlying commodity) in
India due to their businesses.
Speculators
Speculators are traders who speculate on the direction of future prices with the goal of
making profit. Since speculators participate in the commodity derivatives markets for trading
only and not as end users of the underlying commodity, they typically do not take physical
delivery of commodities and instead liquidate their positions prior to or upon expiry of their
futures and options contracts. Day Traders, Position Traders and Market Makers are the
subset of speculators.
Day traders take positions in derivatives contracts and liquidate them prior to the close of the
same trading day. In the derivatives markets, hedgers transfer their risk to speculators. While
Hedgers try to avoid risk and attempt to protect against price changes, speculators on the
other side accept risk in an attempt to profit from price changes.
Position Traders maintain overnight positions, which may run into weeks or even months, in
anticipation of favourable movement in the commodity futures prices. They may hold
positions in which they run huge risks and with a possibility to earn big profits if their
directional call proved to be correct. To keep the position alive over the time, they may need
to roll-over near month Futures position to next month Futures position, as higher liquidity is
generally found in near month contracts only.
Market Maker is a class of member who is obligated to provide liquidity in the Exchange in
the relevant commodity by giving two way quotes at all times on such terms and conditions
as may be prescribed by the Exchange from time to time.
Arbitrageurs
Arbitrageurs simultaneously buy and sell in two markets where their selling price in one
market is higher than their buying price in another market by more than the transaction costs,
resulting in riskless profit to the arbitrager. Arbitragers make riskless profit by exploiting the
price differentials across markets or exchanges. In commodity derivatives, we may see
arbitrage play between Futures – Spot or within Futures when we see huge backwardation.
However, arbitrage opportunities arise infrequently and also vanishes within a very short

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