Futures Spread

A position involving simultaneous long and short futures contracts in related instruments or different months.

Derivatives

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

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