A futures spread (or spread) is a long-short futures position that provides exposure to a spread or difference in two prices. If both futures are traded on the same exchange, two types of spreads are possible:
Spreads can also be constructed with futures traded on different exchanges. Typically this is done using futures on the same underlier, either to earn arbitrage profits or, in the case of commodity or energy underliers, to create an exposure to price spreads between two geographically separate delivery points. Spread trading is the trading of futures spreads. For speculators, spread trading offers reduced risk compared to trading outright futures. This is because the long and short futures that comprise a spread are usually correlated, so they tend to hedge one another. For this reason, exchanges generally have less strict margin requirements for futures spreads.
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