IGNOU MAM 61 2026 - Define and explain hedging and speculation in futures trading, bringin

Question

Define and explain hedging and speculation in futures trading, bringing out their role and significance in risk management and price discovery.

27 Feb 2026

Answer :

Word Count : 482

Hedging and speculation are two fundamental concepts in futures trading, each serving a distinct purpose in commodity markets and contributing to the overall functioning of the market. Hedging is a risk management strategy employed by market participants to protect themselves against adverse price movements in the underlying commodity. It involves taking a position in the futures market that is opposite to an existing or anticipated exposure in the physical market. For example, a farmer expecting to harvest wheat in three months may sell wheat futures contracts today to lock in a price, thereby reducing the risk of falling prices at the

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