Futures Spread Trading has traditionally been known as a professional’s trading strategy. However, we feel it is a trading method that should be in everyone’s arsenal. Our goal here is to layout the basics of spreading so you will have a solid foundation of knowledge in this essential trading strategy.
Types of Commodity Futures Spreads
Inter-Commodity Futures Spread
Futures contracts that are spread between different markets are Inter-Commodity Futures Spreads. One example of this is Corn vs. Wheat. Let’s say the trader thinks that the Corn market is going to have higher demand than the Wheat market. The trade would buy Corn and sell Wheat. The trader does not care if the prices of Corn and Wheat go up or down; the trader only wants to see the price of Corn appreciate over the price of Wheat. If the grain markets sell off, the trader wants to see Corn hold its value better than Wheat. If the grain markets are bullish, the trader wants to see Corn advance farther than Wheat.