In today’s volatile and sometimes uncertain markets, traders are looking for a trading strategies aims at protecting their profits while minimizing losses and managing risk. Hedging your trades using a 'Spread' is one such strategy. Commodity futures spread trading offers an exciting path for potential profits often overlooked by futures traders. Like anything else worthwhile, Commodity futures Spread Trading is not a “piece of cake!” Futures are a "zero-sum" game. One of my good friend says it as “minus-sum” game as it include brokerage & other charges in it. You don't want to be part of the "zero!" Take your time for trading. Hard work and discipline are required for trading. Learn things your futures broker never told you and perhaps never knew. Learn what the professional traders don’t want you to know. Feel empowered and knowledgeable when you place your spread orders. And always remember that the Exchanges were set up for their Members, and not for you. The only purpose these professional traders/brokers have is to take as much of your money as they can from you.
So I have decided to share my knowledge of spread trading because I realize that most current traders have never been exposed to it.
A spread is defined as buying a futures contract and selling a related futures contract to profit from the change in the differential of the two contracts. In this the risk is in the difference between two contract prices rather than the risk of an outright/naked futures contract.
There are different types of spreads and different methods for using each:
Intramarket Spreads (My favourite Trading Strategy)
An Intramarket spreads are done only as calendar spreads. In this method you are long and short futures in the same market, but in different contract months. An example of an Intramarket spread is that you are Long Dec Gold contract and simultaneously Short Oct Gold contract...