I want to find out more detailed information on futures trading on spreads, has anyone got information on this subject. I want to know how it works and how profits are made from the spreads? What strategies people use?
Normally a spread on futures will just offer a later expiry (june, for example) than a daily spread bet.
They will also offer a wider spread than a daily bet : for example, a daily bet on the S&P might be 1117-1117.75 ; a futures spread is more likely to be 1117-1119 or maybe higher, depending on your broker and which month they are offering. Obviously the nearer the expiry, the tighter the spread.
If you're after information on how spreads actually work, try the First Steps Guide.
I think there is some confusion here as to what you are referring to.
I suspect that when you say "spread", you are referring to trading the difference between two seperate contracts, and not the difference between the bid and offer of a single specific contract.
e.g June Ftse future could be quoted as 4535, whilst the September could be quoted as 4555.
If you think the "spread" or differential between the two contracts should only be 10 points and not 20 points (as quoted in the example above), then you would sell the spread. In that instance you might buy the June at 4535 and sell the September at 4555.
If the spread differential between the 2 months does then narrow to 10 points (June is quoted at 4540, September is quoted at 4550), you will have made a 10 point profit.
i.e you have bought June at 4535, then sold it at 4540
you have sold Sep at 4555, then bought it at 4550.
"Spread" trading and " spread Betting" are 2 completely different things and shouldn't be confused.
The above example would also work if you thought the differential between the 2 contracts might widen. In that case you would buy the spread. i.e sell June, buy September, and hope that the differential would change to anything greater than 20 points.
Oatman, don't they quote this the opposite way around in US?
Guess that is not the only thing they get backwards but it is worth remembering.
VicS, profits are made in the same way as any other form of trading, patience, discipline, pulling trigger and confidence in strategy. Spreads work better for scalpers as they are less volatile than outrights so allow trader to take a position with an option to scratch trade for cost if it starts to go wrong way.