Spread trading

From Traderpedia

Definition:
An approach to trading that involves being both long and short at the same time.


Spread Trading, also called Spreading

This can mean intramarket spread trading - being long in the same market, while short in another calendar contract of the same market - ie: Long June and short September contracts of say Brent Crude, or spreading between two or more closely related markets that generally track each other - such as interest rate, energy or currency futures. A recognized intermarket spread is trading the Bund Bobl or Shatz bond futures contracts against each other.

Recognized spread trades usually qualify for big margin breaks from the exchange, because the general exposure to an adverse market movement is reduced. Often this can mean margins are as much as 90% less than the full margin required for an outright directional trade.