What Is the Risk for the Speculator Who Takes the Other Side of a Hedge?

The speculator, often the derivative seller or writer, takes on the risk that the hedger is trying to avoid. If a hedger sells a futures contract (short position), the speculator who buys it (long position) risks a price decline.

In the case of an option, the writer risks a large loss if the option is exercised and the market moves significantly against their position. They assume risk in exchange for potential profit.