What is hedging and speculation?

Question

Accepted Answer

Hedging is a risk management strategy to protect against adverse price movements, while speculation is a strategy to profit from price changes.

Hedging involves taking an offsetting position to reduce the risk of price fluctuations.
Speculation involves taking a position in the market to profit from anticipated price movements.
Hedging is commonly used by businesses to protect against potential losses, while speculation is more focused on generating profits.
Examples of hedging include using futures contracts to lock in prices, while examples of speculation include day trading or options trading.
Both hedging and speculation are important strategies in commodity trading.

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