In simple terms, hedging would mean the reduction of risk. An investor who is looking at reducing his risk is known as a Hedger. A Hedger would typically look at reducing his asset exposure to price volatility and in a derivative market, would usually take up a position that is opposite to the risk he is otherwise exposed to.

Hedgers primarily look at limiting their exposure risk. This is done by using derivative tools and “insuring” limited losses in case of unfavourable movements in the underlying asset. That brings us to the next group of derivative market participants the Speculators.