FCPO Market Players

Who trade in the FCPO? There are two primary types of players in the futures market; the hedgers and the speculators.


Hedgers are the people, mostly palm oil planter, oil millers, cooking oil manufacturers, importers and exporters, who wish to secure a future price for crude palm oil in order to protect themselves against the volatility of the crude palm oil price. In other words, hedgers use FCPO contracts to protect themselves against price risks.
Take for example, in March; a palm oil producer expects to harvest at least 25,000 tons of Palm Oil in June. Say that the FCPO contract for June trades in June for RM3500 per metric ton. By selling the FCPO June contract at RM3500 in March, he can secure a price for his palm oil price and protect himself against the possibility of falling prices of palm oil in June. Even if crude palm oil prices were
to drop to RM3000 when comes to June, the producer had successfully locked in the price of RM3500 by hedging it with FCPO.
Another example: Suppose that ABC cooking oil knows that in six months time it will have to buy 5,000 tons of crude palm oil to fulfill an order. Let’s say the price for crude palm oil is RM3400 per metric ton in March and the futures price for September Contract is RM3500 per metric ton. By buying the FCPO contract, ABC cooking oil can secure a price of RM3500 per metric ton in which reduces the company’s exposure to price risks. Even if crude palm oil prices shot up to RM3800 per metric ton  ABC cooking oil will be able to close its futures position and have successfully bought 5,000 tons of  crude palm oil at RM3500 per metric ton.


The speculators on the other hand, are very difference from hedgers. Hedgers use futures to mitigate  risk whereas speculators use futures to benefit from the risk itself. Speculators are individuals who prefer to profit from the risk that the hedgers are protecting themselves against.
Since higher risks provide higher returns, the speculators enjoy such volatility as it brings them substantial benefits. Thus, speculators do not intend to own the crude palm oil of their futures contract.  Rather, a speculator would enter a market to seek profit and take the profit by offsetting their position  in the market (buy what is sold, sell what is bought) after benefiting from the rise and fall of prices.
There are many types of speculators. They all have different trading methodologies and their style varies from one to another. For private speculators, they may specialize in FCPO and only trade that FCPO day after day.
For example, Janice may trade solely the FCPO only and she only specializes in that particular commodity and trades it every day. This will make her a private speculator. There are also traders who buy or sell FCPO at the slightest move of the price; for example, fraction of
a tick. These traders are called scalpers and they are very active in the market, hoping to secure a profit through the small movements of the price.
There are also day traders who buy and sell contracts throughout the day and then closing their position before the session ends. There are also position traders where they will hold their position for days, weeks or months.  It is obvious that there are different speculators that trade with different styles and preferences. There  are no holly grail. All approaches are unique to each speculator and if one can find a profitable trading  strategy in a particular method; they will almost usually stick to what works for them. However, what  works for one may not work for others.

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