What Is the Role of Speculators in the Derivatives Market?

Speculators play a crucial role in the derivatives market by providing liquidity and assuming the risk that hedgers wish to offload. By taking the other side of trades initiated by hedgers, speculators facilitate the risk transfer process.

Their willingness to accept risk in the hope of profiting from price movements makes the market more efficient and ensures that there are always buyers and sellers available. This constant trading activity also helps in the process of price discovery for the underlying assets.