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An Intermarket spread can be accomplished by going long futures in one market, and short futures of the same month in another market. Intermarket spreads can become calendar spreads by using long and short futures in different markets and in different months. A less commonly known method of creating spreads is via the use of contracts in similar markets, but on different exchanges. These spreads can be calendar spreads using different months, or they can be spreads in which the same month is used.
Although the markets are similar, because the contracts occur on different exchanges they are able to be spread. Spreads have low time requirements. You don't have to watch a spread all day long. You do not need real-time data. These great advantages make spread trading the perfect trading instrument for professional traders and beginners.
The most effective way to trade spreads is using end-of-day data. Therefore, spread trading is the best way to trade profitably even if you do not want to watch or cannot watch your computer all day long i. Even those who daytrade use these advantages to optimize their trading results at the end of their trading day. Spreads are easier to trade. Take a look at the Unleaded Gas Spread again see below.
Do you see how nicely this spread starts trending in the last week of May? Whether you are a beginner or an experienced trader, whether you use chart formations or indicators, the existence of a trend is obvious.
Spreads tend to trend much more dramatically than outright futures contracts. They trend without the interference and noise caused by computerized trading, scalpers, and market movers. Spreads have lower margin requirements. Spreads have reduced margin requirements, which means that you can afford to put on more positions. That's a great advantage for traders with a small account.
Spreads give a higher return on margin. However, the difference in return on margin is extraordinary:. And keep in mind that you can trade 10 times as many spread contracts as you can outright futures contracts. In our example you would achieve a times higher return on you margin. Spreads give countless trading opportunities. Spreading has gone much further than its original intent.
You can spread one commodity against another e. You can spread one stock against another e. You can spread one index against another e. You can spread the strongest share in a sector against the sector index. There are dozens of trading opportunities each day , and you can choose the best ones. Spreads offer a lower risk. Spreading is one of the most conservative forms of trading. It is much safer than the trading of outright naked futures contracts.
Obviously, the risk taken for the difference in price among related contracts is far less than the price risk taken in an outright speculation.
This is because related futures will tend to move in the same direction. This spread was entered not only on the basis of seasonality, but also by virtue of the formation known as a Ross hook Rh.
The spread moved from Spread trading does not need live data. The most effective way to trade spreads is using end-of-day or delayed data. Spreads trend more often than do outright futures. Spreads often trend when outright futures are flat. Look at the following chart: Would you want to have been long live cattle from mid-April until end of May? But, what about a spread between Live Cattle and Feeder Cattle? Well, it is not true that hardly anybody trades spreads - the professional traders do, every day.
But either by accident or design, the whole truth of spread trading has been hidden from the public over the years. While spreading is commonly done by the market "insiders," much effort is made to conceal this technique and all of its benefits from "outsiders," you and me.
After all, why would the insiders want to give away their edge? By keeping us from knowing about spreading, they retain a distinct advantage. The concept of trading seasonal trends and seasonal spreads has been almost entirely overlooked by the hordes of daytraders who today riffle the markets with their almost frantic noise. It is also overlooked by the fund traders. By fund traders I mean those massive pools of managed money residing in hedge funds, commodity pools, pension funds, bond funds, securities funds, etc.
In fact, with the exception of the large commercial and institutional interests, the whole concept of seasonal trend and seasonal spreading has been overlooked by most traders. You have taken the first step by learning about the lost art of spread trading. But why is spread trading a lost art? The reason is quite interesting: Current market conditions dictate that traders who wish to minimize their risk have to learn to trade spreads.
So, if you are serious in getting started in spreads - I have good news for you! I have decided to share my knowledge of spread trading because I realize that most current traders have never been exposed to it! Joe Ross, creator of the Ross hook, has more than 50 years of trading experience. In he founded Trading Educators, Inc. He started writing books, giving seminars and private tutoring. To date, in addition to his own trading, he has written 12 books and personally taught thousands of traders.
Thus originating the manual Trading Spreads and Seasonals , which has become a classic after just a short time, and the top selling book in the field of spread trading. This hard cover manual contains more than pages of practical and interesting information about spread trading. It expands on the topics mentioned above, giving you a better understanding of and insight into what spreads really are and, more importantly, how to place and manage your spread trades.
You will learn everything you need to know about Inter- and Intramarket Spreads, about Inter-Exchange Spreads, and markets suitable for spreads. As for the experienced traders, we offer a wide variety of commodity futures trading platforms to suit individual needs. These commodity trading platforms give traders access to an interface specifically tailored to their trading needs.
At Cannon Trading, our focus on speed, reliability and superior customer service is sure to meet and exceed your expectations. The entire collection of all of our resources in concert with the professionals working at Cannon Trading is designed to help our clients trade the markets.
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