What are Futures Spread Trading?

Future cryptotrader is the way to trade the futures market and spread trading is famous for that. If we talk about future spread trading, let’s take a look at it. The strategy by which you buy a futures contract and at the same time you sell another one to take advantage of the increased price difference. So basically, the technique to make a profit is by selling or buying future contracts which assist to complete a unit trade for every long or short period. It carries lower risk factors and it is very useful for even experienced and non-experienced traders too. Future trading does not vary with the current ongoing market rate; it reserves a conservative approach in addition to future trading purposes.

Moreover, the prices of spread trading are always fixed. Its prices were calculated based on the variation between the next month it’s the back month. Hence this difference results in positivity for long period.

How futures spread work?

As the concept of future trading is possible when the trader purchases one. Contract and at the same time sold another one. Its objective is to capture the difference in prices of both the old one and the already purchased contract. This difference in both price values is known as the spread. Some stakeholders go with this approach to barrier their risk while trading while others spread trading just to earn profit. It is obvious that the price value of spread trading remains single and its way of doing is different. The two different ways of doing spread trading are:

Buying the spread

The purpose of buying spread contracts is to widen the difference in the price value of both contracts. As the significance of  future buying projects expands means

Selling the spread: selling of future contracts means that the price difference between the contracts is expected to reduce I.e. when it seems that the contract value is decreasing at that moment the trader will sell the contract and make money from the expansion of the contract. However, these are the grounded aspects of trading. Some complex techniques also exist such as in the case of advance trading, which captures two positions in the market whereas spread trading did not confuse the trading market with its one position which means either selling or buying the contract.

Risk management in spread trading

As we talk about risk management, spread trading is considered to be low risk as compared to others but the profit margin is not as good because of its position trading in the market. Its reason is the changes that occurred in the spread trading are very little as compared to actual price movement for one position in the market. The experience in spread trading states that one from both whether selling trade or buying trade would end in a loss from the opposite and one would significantly offset those losses from the opposite side trade.

The required margin for both sides of trading would be higher than the margin from trading one side which results in the spread trading would be easy with the low margin requirement as compared to others. Hence it is not wrong to say that spread trading is not fatally risk-free because each side of the trading may have some negative impacts in terms of technical or fundamental factors in the market. Moreover, a general movement in the market mat exceeds via further expansion and contraction of spread trading.

Types of futures spreads

Here are some types of future trade as given below:

Intermarket futures spread

The least common way of future spread trading is known as aftermarket future spread. In this condition, the trader opens up both buy and sell positions for the same asset and whose contract month will be similar but on a different exchange. For example, Chicago board of trade and the Kansas City board of trade.

Intra-market futures spread

In this contract, the trade fixes it’s set for long in one contractual month and further goes short in either project in return for the same security on ye some exchange.

Share on:

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.