Market Participants

Introduction

Futures markets are driven by different types of participants, each with distinct goals, constraints, and behaviors.
Understanding who is active in the market helps traders interpret price movement more objectively.

Markets do not move randomly — they move because participants act for specific reasons.

Main Types of Market Participants

Hedgers

Hedgers use futures to reduce business risk, not to speculate.

Examples:

• Farmers hedging crop prices

• Energy companies hedging fuel costs

• Corporations managing interest rate or currency exposure

Their primary goal is price stability, not profit maximization.

Institutional Traders

Institutions include:

• Banks

• Asset managers

• Hedge funds

They trade futures for:

• Portfolio hedging

• Exposure management

• Tactical positioning

Institutional activity often influences market structure, volatility, and liquidity.

Market Makers

Market makers provide liquidity by continuously quoting bid and ask prices.

Their role:

• Facilitate trading

• Reduce spreads

• Maintain orderly markets

They do not trade based on directional bias but on order flow and inventory management.

Retail Traders

Retail traders seek opportunity and profit.

Characteristics:

• Smaller position sizes

• Higher sensitivity to volatility

• Often influenced by emotions

Retail participation increases activity but rarely controls long-term direction.

Why This Matters

Price behavior changes depending on which participants are active.
Understanding participation helps traders avoid false assumptions about market intent.