Participants in the Derivative markets:

Mainly there are three types of participants in Derivative market.

1. Hedgers
2. Speculators
3. Arbitragers

1.Hedgers: Hedgers are the participants who enter in the Derivative market to minimize their risk against the position they have in the spot market (Equity Market). Hedging can be done by taking a opposite position in the Future market.

For Example: Suppose a portfolio manager/ Individual is having a position of Rs. 1 crore in the Spot Market and he expects the market to decline (Bearish) and consequently value of his portfolio will decline. In this situation he can take the opposite position in the future market of equivalent value (Sell futures).

Let us assume in fact market fell down and he makes loss in the Cash Market against his position, but if market declines the price of the future which he sold will appreciate, this profit will compensate his loss in the cash market.

2.Speculators: Speculators are the participants who have a view on the market (Bullish or Bearish), on the base of their view they buy or sell a position in the derivative market. A speculator does not have any risk to hedge.

3.Arbitragers: Arbitragers are those market players who try to gain from the discrepancy between prices on two different markets.

For example: Suppose shares of ICICI Bank are quoting at Rs. 350 on NSE and Rs. 352 at BSE. Arbitragers quickly try to gain from this price difference.
This involves a simultaneous buying of ICICI Bank on NSE and selling at BSE.
This activity is termed as Arbitration.

In context of Derivative market, this trading has a special term “Spread trading”.