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13 what is spread tradingWhat is spread trading? Modern markets are characterized by an increase in the volume of speculative transactions and a high information rate, so the task of investors is to preserve capital and obtain a stable income through conservative strategies, and the most recommended - spread trading ...

The meaning of a futures contract is the future sale of a financial asset at a price that is fixed at the moment. The spread is precisely the difference between the sale and purchase price of this asset.

The operation for spread trading consists in the simultaneous opening of equal opposite positions: long (for purchase) and short (for sale) under different contracts for the same or for the related goods.

The profit is obtained from the relative change in the prices of the goods under these contracts for a certain period.

Transactions resemble arbitrage, but the position on the spread is more risky, although less than direct futures. Consider the main types of spreads used in trading.

Intramarket spread ("intramarket-spreads", "intracommodity-spreads") - for mutual sale and purchase of futures for the same goods with different delivery times. The difference between the quotes of a long and a short position can be positive or negative.

In operations with the calendar spread on the exchanges, these positions for buying and selling open simultaneously and are accepted for one spread, which simplifies the monitoring of quotations.

Example: the spread between the March and April futures for oil (NYMEX) on March (long), and to April (short).

Intermarket spread - implies the trading of futures with one basis on different exchanges. Example: futures for oil LSO (March): purchase on NYMEX, and sale - on the ICE exchange. It is possible to use such a spread in the form of a calendar, that is, contracts for different periods and on different exchanges are bought and sold.

Intercommodity spread - purchase and sale of contracts for different goods, associated economically with a positive correlation. There is a situation of arbitration because of the trade of identical goods and risk-free transactions are possible if the price of one contract exceeds the price of another more than the percentage of overhead costs. The risk is much higher, but the expected profit is many times higher, since the calculation is based on the expectation of different trading behavior of commodity prices. Example: spread wheat / soybean, bonds / eurodollar. Investors in the FOREX market will be interested in the option of an inter-commodity spread between different currency pairs, for example, (buy EUR / USD) - (sell GBP / USD).

The market generates many spreads reflecting production processes, for example: crack spread (oil / oil products), crash spread (soybean / oil / flour beans at the exchange ratio of 1: 1: 1), spark spread (fuel price / electricity price ).

Most often, trading spreads is more profitable, since the spread is more predictable. When trading the difference in related tools, the effect of speculative factors is excluded and fundamental interrelations remain, which gives a more steady motion.

Positions are mutually hedged and the common position will be neutral to the market, which reduces the risk of loss. As a result, most traders after trading spreads to individual instruments no longer return.