Home
Futures Trading
BASIC THINGS 1) Basic Instructions
2) Discount Markets
HOW TO TRADE How To Trade
MARKET MECHANISMS 1) Basic
2) Advanced
MARKET TOOLS 1) Charts
2) Volume Profiles
3) Trading Indicators
THE SYSTEM 1) Trading System
2)Long-Term analysis
3)Short-Term analysis
3) Trading Analysis
MARKET TIMING 1) Candlestick Charts
2) Candles Patterns
3) Chart Patterns
4) Continuation Patt.
EMINI TRADING Emini Trading
E-Mini System
O/R System
Dow Futures
FOREX FX Basics
Forex systems
FX Introduction
COMMODITIES 1) Commodities
Commodity System
Oil Futures
MANAGEMENT (Risk, Mind & News) Risk Management
The Trader's Mindset
Market News
SIMULATOR Trading Simulator
FUTURES BROKERS 1)  What to look for
2) Futures Brokers
TRADING PLATFORMS Platforms Reviews
IMPORTANT Cycles
TimeFrames Analysis
"Super Tech Analysis"
ARTICLES Part 1
CONTACT, RESOURCES, ETC Contact/About Me
Resources
Disclaimer
CHARTS and QUOTES Charts and Quotes
 

Futures spread trading, another way to trade the market.

Futures spread trading is yet another way to trade the markets.

Spread trading in futures is normally done in commodities such as grain, crude oil, etc or interest rates.

****Please to not confuse it with SPREAD BETTING which is another form of trading where is normally NOT DONE in an exchange but with the quotes that a market maker gives you, essentially in SPREAD TRADING you trade against your market marker.*****

Now, For example in futures spread trading a trader might trade the difference in price between:

  1. August Corn and December Corn.
  2. The difference in price between December 30 Year T-Bond and December 10 Year T-Note
  3. Or between the strongest stock in a sector and the weakest stock in that sector.

Normally futures spread trading happens in related contracts, either by month expiration (August Corn - December Corn) or related instrument with the same expiration date (30-year T-Bond vs 10 year T-Note).

Basically there are 3 types of spread trading in futures

  1. Calendar spreads:

    The trader is long and short in futures of the same market, but in different months such as the corn example above where the trader is Long August Corn and simultaneously Short December Corn.

  2. Intermarket Spreads:

    An Intermarket spread can be accomplished in futures spread trading by going long futures in one market, and short of the same month in another market.

    For example: Short December 30 year T-Bond and Long December 10 Year T-Note.

  3. Inter-Exchange Spreads:

    I think this is the less commonly used method of creating spreads. The futures contracts of similar markets are used, but on different exchanges. For example, Crude oil trading in NYMEX and Brent Crude Oil from ICE exchange.

Make money in futures spreading?

If you buy a normal futures contract (outright), the market must go up. If you sell, the market must go down. With a spread trade, you can make money in five different ways.

  1. If the leg or side you bought goes up relatively higher than the leg (the other futures contract) you sold, you make money.
  2. If the leg you bought goes up and the leg you sold does nothing, you make money.
  3. If the leg you bought does nothing and the leg you sold goes down, you make money.
  4. If the leg you sold goes down relatively lower than the leg you bought, you make money
  5. And finally if the leg you bought goes up while the leg you sold goes down, you make money.

Now, If the opposite of what is shown above happens, you would lose money, so BE VERY VERY careful my friend.

Advantages of futures spread trading

It offers lower volatility than straight futures and spread trading usually carries lower margin requirements. Spread trading can minimize risk during limit moves in the futures markets. Traders in spread do not care about market direction just a widening or tightening of the futures spread itself.

Well my friend as always be careful with whichever method you use to approach the markets, you could lose LOTS of money just as MAKE it, so planning and discipline is a MUST.


Click to go to back from futures spread trading to futures trading online articles

Go back to futures trading how to


Essential Tools For Traders

  • Excellent Trading Lessons - FREE

  • Instant Analysis Of Where the Market Could Go Next

  • Tools to Understand the Markets

  • Trading System

  • Reader's Testimonials

    Praveen from Miami, Florida.

    First I must congratulate you on a very successful and useful site. It is practical and really helps to trade with confidence. Excellent work. Trust me when I say this...

    I have gone through thousands of sites before I came across your work and indeed it is commendable. I have one question for you. After drawing support and resistance lines on the 30 and 5 minute chart, do you then focus on a 2 minute chart and take your trades based on candlestick patterns?

    Robby from Indonesia.

    WOW, very very good materials. I've been studying market profile and supply and demand for about 2 years now. So far, I found the materials in your website to be very generous.

    Jose, Las Palmas, Gran Canaria, España.

    Hello, i only want to say you thank you for all this free information, for me that I'm a begginer all this information is pure gold.

    Thank you very much.