Spread trading is a low risk strategy that is designed to help you gain money by selling futures in a particular commodity. Even though there is a chance that you will lose money, in most cases, you stand to gain. In the situations where you end up losing money, this is usually offset by the way that the futures prices moved.
The nice thing about spread trading is that you can usually pay attention to the time of year that you are buying or selling either short or long positions on the future. This way, you’ll be able to take advantage of the seasonal changes in futures prices. While this is not always foolproof, unless something drastic happens to the commodity you are buying futures of, you should be able to make a profit by betting on these price changes.
Most spread trading takes place over a few months. This is so that you can take advantage of the differences in price fluctuations from the time that you buy the futures to when it is time to sell. You need to make sure that the time of year you’re buying in matches the type of position you’re taking on the futures, however.
There are two different types of spread trading, as well, depending on what types of futures you want to buy. The first kind of spread trading is intra commodity. This means that you will buy and sell futures of the same commodity from month to month. The other type of spread trading is called inter commodity. This means that you will buy one commodity, and then sell a similar commodity later on.
One of the other advantages of spread trading is that you can trade in ways that render the actual market direction meaningless. Therefore, even if the market is going down in price overall, as long as you’ve got a short position in one of the commodities, you should still stand to make some money.
You should only engage in spread trading if you know enough about the commodity you’re buying futures in. Otherwise, you’re likely to mis-judge the seasonal changes in commodity price. If you are able to tell what different commodity futures do from month to month, then you’ll have no trouble making money on futures spread trading.