Spread trading index futures
In financea spread trade also known as relative value trade is the simultaneous purchase of one security and sale of a related security, called legsas a unit. If a trader wishes to hold a position in the commodity beyond the expiration date, the contract can be "rolled over" via a spread trade, neutralizing the spread trading index futures to expire position while simultaneously opening a new position that expires later. Calendar spreads are executed with legs differing only in delivery date. When a futures contract expires, its seller is nominally obliged to physically spread trading index futures some quantity of the underlying commodity to the purchaser.
Common spreads are priced and traded as a unit on futures exchanges rather than as individual legs, thus ensuring simultaneous execution and eliminating the execution risk of one leg executing but the other failing. Views Read Edit View history. Spread trades are executed to attempt to profit from the widening or narrowing of the spread, rather than from movement in the prices of the spread trading index futures directly. Intercommodity spreads are formed from two distinct but related commodities, reflecting the economic relationship between them.
Spread trades are usually executed with options or futures contracts as the legs, but other securities are sometimes used. There are spread trading index futures different types of named option spreads, each pricing a different abstract aspect of the price of the underlying, leading to complex arbitrage attempts. Option spreads are formed with different option contracts on the same underlying stock or commodity.
When a futures contract expires, its seller is nominally obliged to physically deliver some quantity of the underlying commodity to the purchaser. Calendar spreads are executed with legs differing only in delivery date. The margin requirement for a futures spread trade is therefore usually less than the sum of the margin requirements for the two individual futures contracts, and sometimes even less spread trading index futures the requirement for one contract. This is most commonly done by entering into an offsetting spread trading index futures in the market.
Spread trading index futures to be confused with Swap spreadsIRS Spread trades are formed with legs in different currencies but the same or similar maturities. Common spreads are priced and traded as a unit on futures exchanges rather than as individual legs, spread trading index futures ensuring simultaneous execution and eliminating the execution risk of one leg executing but the other failing. All articles with unsourced statements Articles with unsourced statements from June Pages using div col with deprecated parameters. Bucket shop stock market Contract for difference Forex Financial betting Spread betting. In practice, this is almost never done; it is far more convenient for both buyers and sellers to settle the trade financially rather than arrange for physical delivery.