In the derivative market ecosystem, there are three main active market participants. The first group comprises commercial producers and consumers who need raw materials to run their operations (e.g., jet fuel for airlines, gold for electronics manufacturers, and wheat for bread makers). They have a vested interest in maintaining predictable production costs to achieve a stable cash flow forecast. To do that, the price risk of these materials is transferred by the process known as hedging.
The second group is the speculators. Even though speculators tend to have a bad reputation with the public, they serve a vital function in the market by allowing the hedging process to work by providing some liquidity in futures transactions and facilitating risk transfer. And risk in any business does not disappear. It can be treated in four ways: avoid, accept, reduce, or transfer. The hedging process transfers risk to another party willing to take it, and speculators are the group answering the call by taking the opposite side of the trade.
Between the two groups is the market maker. The market maker's main function is to provide liquidity in futures transactions. In performing an intermediary role between buyers and sellers, they ensure that a seller's offer has a buyer and that a buyer's bid is taken. Without them, obtaining favorable pricing on a transaction may be difficult or not worth pursuing.