Futures trading the benefits are the hedger can pass price risk to the speculator. The speculator can make money if the market moves in the direction the speculator expects. This, in a nutshell, is the benefit of futures trading. Of course, there are other reasons for futures trading, but they usually fall under either of the aforementioned categories.

A speculator trades the futures market because of the leverage his trade allows. This example will illustrate the leverage that can be had by the speculator. A soybean contract can be controlled by say a margin of $1000 per contract. The contract represents 5000 bushels of soybeans. A penny change in price equals $50. Soybeans can trade over a daily range of 30-cents or more. A move in the correct direction for the speculator is equal to $1500 profit. That is the positive affect of leverage. Of course, it can go the other way also.

A user of soybeans or a grower of soybeans can buy or sell a contract and lock up the price. The user guarantees a price he can live with and the grower does the same. They have both passed off the price risk to the speculator; these are the benefits of futures trading.

There are numerous futures contracts traded on the exchanges located in Chicago, New York and London. All operate basically the same with hedgers and speculators making up the trading population. You can trade all metals, interest rates, food commodities like coco or orange juice, cattle, and hogs.

Each market is all about passing price risk from one group to another.