How Hedgers and Speculators work together to exchange risks in terms of purchasing and selling. Explain how both participants interact in reversing trade and the purpose of having daily price limits as a feature of currency futures.

Both hedgers and speculators exchange risk by locking in fixed prices for future transactions. The futures market is used by hedgers to minimize their risks of losing money due to fluctuations in commodity prices, while the speculators take advantage of it to profit from those fluctuations. Hedgers buy or sell futures contracts to safeguard their profits if their commodity price moves against them.

Speculators take advantage by selling low and buying high. They essentially become “middlemen” between buyers and sellers, taking on higher levels of risk but also potentially earning greater rewards when done correctly. Hedgers and traders who work together can share risks and benefit in purchasing and selling commodities.

One example is known as “reversing trade” which occurs when a hedger buys one contract then immediately sells another at different prices thereby offsetting any potential losses due to fluctuating markets conditions. Currency futures also have daily price limitations, which are important because they act as a guardrail for market participants and keep trades transparent.