Futures Spread

<body onLoad="MM_checkPlugin('Shockwave Flash','','http://www.riskglossary.com/default_nofl.htm',false);return document.MM_returnValue" stylesrc="../_private/template.htm" bgcolor="#FFFFFF" link="#669933" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table1"> <tr> <td width="780"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" height="37" id="table2"> <tr> <td height="35" width="100%"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table3"> <tr> <td width="100%" align="left" valign="top"> <p class="header_gold">Futures Spread</td> <td width="45" align="right" valign="bottom"> <map name="FPMap7"> <area href="http://www.contingencyanalysis.com" shape="rect" coords="1, 0, 44, 11" target="_top"> </map> <img border="0" src="../images/home.gif" usemap="#FPMap7" width="45" height="12"></td> </tr> </table> </td> </tr> <tr> <td width="100%" bgcolor="#CC9966" height="2"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> </tr> <tr> <td width="0%" valign="top" bgcolor="#FFFFCC"> <table border="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" cellspacing="1" id="table4"> <tr> <td width="0%" align="left" valign="top"> <p class="header2_black">Explained:<br> <img border="0" src="../images/blank_1x100.gif" width="100" height="1"></td> <td width="0%" align="left" valign="top"> <p class="word_list"> <a href="#calendar spread">calendar spread</a><p class="word_list"> <a href="../articles/futures_spread.htm">futures spread</a><p class="word_list"> <a href="#intercommodity spread">intercommodity spread</a><br> <img border="0" src="../images/blank_1x160.gif" width="160" height="1"></td> <td width="100%" align="left" valign="top"> <p class="word_list"> <a href="#intracommodity spread">intracommodity spread</a><p class="word_list"> <a href="#spread">spread</a><p class="word_list"> <a href="#Spread trading">spread trading</a><br> <img border="0" src="../images/blank_1x160.gif" width="160" height="1"></td> </tr> </table> </td> </tr> </table> <p class="body">A <b><a name="futures spread">futures spread</a></b> (or <b><a name="spread">spread</a></b>) is a <a href="../articles/short_sale.htm">long-short</a> <a href="../articles/future.htm">futures</a> 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:</p> <table border="0" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111" width="310" align="left" id="table5"> <tr> <td width="300"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script>  </td> <td width="9"> </td> </tr> </table><p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10">An <b><a name="intracommodity spread">intracommodity spread</a></b> (or <b><a name="calendar spread">calendar spread</a></b>) is long one future and short another. Both have the same <a href="../articles/derivative_instrument.htm">underlier</a>, but they have different maturities.<p class="bullet_line_space"> <img border="0" src="../images/bullet.gif" width="20" height="10">An <b><a name="intercommodity spread">intercommodity spread</a></b> is a long-short position in futures on different underliers. Both typically have the same maturity.<p class="body">Spreads can also be constructed with futures traded on different exchanges. Typically this is done using futures on the same underlier, either to earn <a href="../articles/arbitrage.htm">arbitrage</a> profits or, in the case of commodity or energy underliers, to create an exposure to price spreads between two geographically separate delivery points.</p> <p class="body"><b><a name="Spread trading">Spread trading</a></b> is the trading of futures spreads. For speculators, spread trading offers reduced <a href="../articles/risk.htm">risk</a> compared to trading outright futures. This is because the long and short futures that comprise a spread are usually <a href="../articles/correlation.htm">correlated</a>, so they tend to <a href="../articles/hedging_and_diversification.htm">hedge</a> one another. For this reason, exchanges generally have less strict <a href="../articles/future.htm">margin</a> requirements for futures spreads.</p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table6"> <tr> <td height="30" valign="bottom" colspan="2"> <p class="header2_black">Related Internal Links</td> </tr> <tr> <td colspan="2" bgcolor="#CC9966" height="2"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> </tr> <tr> <td bgcolor="#FFFFCC" colspan="2"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="6" id="table7"> <tr> <td width="100%"> <p class="explanatory_text"> <img border="0" src="../images/bullet_link_glossary.gif" width="26" height="15"><a href="../articles/derivative_instrument.htm">derivative instrument</a> An instrument which derives value from the value of some commodity, energy, or other financial instrument.<p class="explanatory_text"> <img border="0" src="../images/bullet_link_glossary.gif" width="26" height="15"><strong style="font-weight: 400"><a href="../articles/forward.htm">forward contract</a> A </strong>trade that is agreed to at one point in time but will take place at some later time.<p align="left" class="explanatory_text"> <img border="0" src="../images/bullet_link_glossary.gif" width="26" height="15"><a href="../articles/future.htm">future</a> An exchange-traded derivative that is similar to a forward.</p> <p class="explanatory_text"> <img border="0" src="../images/bullet_link_glossary.gif" width="26" height="15"><a href="../articles/options_spread.htm">options spread</a> A position combining two or more options on a single underlier.<p class="explanatory_text"> <img border="0" src="../images/bullet_link_glossary.gif" width="26" height="15"><a href="../articles/settlement.htm">settlement</a> In finance, performance on a contractual obligation.</p> </td> </tr> </table> </td> 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class="explanatory_text" style="margin-bottom: 14">Kolb (<a target="_blank" href="http://www.riskbook.com/link/kolb_r_(1998).htm">1998</a>) is the standard introductory text on futures. </p> <table border="0" cellpadding="4" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table9"> <tr> <td width="100" align="left" valign="top"> <map name="FPMap426"> <area target="_blank" href="http://www.riskbook.com/link/kolb_r_(1998).htm" shape="rect" coords="0, 0, 95, 124"> </map> <img border="0" src="../images/book_kolb_125.jpg" usemap="#FPMap426" width="96" height="125"></td> <td align="left" valign="top"> <table border="0" cellpadding="1" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table10"> <tr> <td width="90%" colspan="3"> <p class="title"> <a target="_blank" href="http://www.riskbook.com/link/kolb_r_(1998).htm"> Understanding Futures Markets</a> </td> </tr> <tr> <td colspan="3"> <p class="author"><b>Robert Kolb</b></td> </tr> <tr> <td width="10%"><map name="FPMap40"> <area target="_blank" href="http://www.riskbook.com/main/ratings.htm" shape="rect" coords="0, 0, 89, 15"> </map> <img border="0" src="../images/star_4.gif" usemap="#FPMap40" width="90" height="16"></td> <td width="10%" class="author">quality</td> <td width="70%"> <p class="author"> </td> </tr> <tr> <td width="10%"><map name="FPMap430"> <area target="_blank" href="http://www.riskbook.com/main/ratings.htm" shape="rect" coords="0, 0, 89, 15"> </map> <img border="0" src="../images/tech_1.gif" usemap="#FPMap430" width="90" height="16"></td> <td width="10%" class="author">technical</td> <td width="70%">  </td> </tr> <tr> <td width="10%"> <p class="author">1998</td> <td width="10%"> </td> <td width="70%"> <p align="center"><map name="FPMap37"> <area target="_blank" coords="0, 0, 145, 19" shape="rect" href="http://www.riskbook.com/link/kolb_r_(1998).htm"> </map> <img border="0" src="../images/pointer_review.gif" usemap="#FPMap37" 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