10 Year U.S. Treasury Note Futures
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Both ten-year treasury-note traders and futures traders involved in other commodity futures trading are basically positioned in 1 of 2 main groups: hedgers, who have an interest in the underlying asset (which could include an intangible such as an index or interest rate) and are seeking to hedge the risk of price changes; and speculators, who trade futures seeking to make profits by predicting market price moves and opening a derivative contract related to the asset "on paper", while they have no practical use for or intent to actually take or make delivery of the underlying asset. In other words, the investor is seeking exposure to the asset in a long future or the opposite effect via a short future contract.
Commodity hedgers typically include producers and consumers of a commodity or the owner of an asset or assets subject to strong influences such as an interest rate movement. Long-range interest rate fluctuation risk hedging also takes place in the 30-year treasury bonds futures contract, which some 10-year treasury note traders also trade, on the CBOT.
For example, in commodity markets, farmers often sell (hedging) futures contracts for the crops and livestock they produce to guarantee a certain price, making it easier for them to plan. Similarly, livestock producers often purchase futures to cover their feed costs, so that they can plan on a fixed cost for feed. In modern (financial) markets, "producers" of interest rate swaps or equity derivative products will use financial futures or equity index futures to reduce or remove the risk on the swap.
An example which has elements of both hedging and price speculation involves a mutual fund or separately managed account whose investment objective is to track the performance of a stock index such as the S&P 500 stock index. The Portfolio manager often "equalizes" cash inflows in an easy and cost effective manner by investing in (opening long) S&P 500 stock index futures. This gains the portfolio exposure to the index which is consistent with the fund or account investment objective without having to buy an appropriate proportion of each of the individual 500 stocks just yet.
That also preserves market diversification, maintains a higher degree of the percent of assets invested in the market and helps reduce tracking error in the performance of the fund/account. When it is economically feasible (an efficient amount of shares of every individual position within the fund or account can be purchased), the portfolio manager can close the contract and make purchases of the individual stock.
The social utility of futures markets is considered to be mainly in the transfer of risk, and increased liquidity between traders with different risk and time preferences, from a hedger to a commodity trading speculator. US treasury notes are an excellent choice for both hedgers and commodity traders regarding hedging interest rates and for financial trading profits, involving both longer term position-trading and short-term day-trading purposes.