Who Invests and Trades In Lumber Futures?
The CME first introduced Lumber futures in 1969. Market participants can use lumber futures a way to hedge their price risk and regain control over lumber investments. Mills, producers and marketers of Lumber and Lumber products can minimize the risk of price fluctuations in the Lumber market by using a short hedge, which locks in a fixed selling price for the Lumber that they produce. Thus futures allow them to get the specified amount in the contract, even if prices fall in the future.
Consumers of Lumber, like homebuilders, furniture manufacturers and retail dealers, can use a long hedge to set a fixed purchase price for a specified quantity of Lumber as per their need.
Lumber futures are also traded by speculators. Speculators have no vested interest in the underlying asset, that is, they will neither deliver Lumber nor take delivery for Lumber. They trade in and out of Lumber futures only based on speculations about the price fluctuations of Lumber over the trading period. They take on the price risk that hedgers are trying to avoid, because they hope to profit from the price movements.