Definition
Futures spreads involve buying one futures contract while selling another, capturing the price difference rather than the outright direction. Calendar spreads trade the same commodity in different months. Inter-commodity spreads trade related products (crude oil vs heating oil). Spread trading typically requires lower margin and has lower risk than outright positions.
lightbulb Example
A crude oil calendar spread: buy December WTI, sell March WTI. If December is $78 and March is $80 (contango = $2), and the spread narrows to $1, the trader profits $1 per barrel regardless of the absolute oil price direction.
verified_user Key Points
- Lower risk and margin than outright positions
- Calendar spreads trade different months
- Inter-commodity spreads trade related products
- Captures relative value rather than directional moves