1. C. That is an inter-exchange spread.
  2. D. This is a bear spread because the near-future contract was sold and the far-future contract was bought. Whether it is a bull or a bear spread, the far-future price exceeds the near-future price, as it will in a normal market, so the basis (near-future price minus far-future price) remains negative.
  3. A. If the question were about the basis, without description, rather than "the basis for the spread," -$5 would also be correct.
  4. C. The others are false.
  5. B. Speculators profit from a reverse crush spread in the processor's (hedger's) gross profit margin on soybean production is flat or negative. In a normal (rising) market, however, this scenario would be less likely; the reverse spread would tend to be unprofitable.
  6. A. Speculators are long the output and short the input. The reverse crush spread is an example.
  7. B. Spreading may be used as a speculative tool as well as a hedging tool. The differing margin requirements between hedgers and speculators using spreads, attests to this fact. Additionally, both legs of a spread could move in a direction other than what the trader (be he a speculator or hedger) intended. Some risk management or speculative scenarios may warrant only a long or a short position.
  8. E. It may be entered as one trade or as a pair of trades. The former option is more common and more cost effective as trading systems allow for a single entry to a trade with multiple parts.
  9. B. As this type of spread is speculative, margin requirements would be higher.
  10. B. Futures markets help to reduce price risk of the actuals. Standardization is a feature of a futures market. Bespoke or custom designed contracts are hallmarks of a forward market.





Profit/Loss Calculations For Speculative Trades

Related Articles
  1. Trading

    Trading Calendar Spreads In Grain Markets

    Futures investors flock to spreads because they hold true to fundamental market factors.
  2. Trading

    S&P 500 Options On Futures: Profiting From Time-Value Decay

    Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
  3. Investing

    What Is Spread Betting?

    The temptation and perils of being over leveraged is a major pitfall of spread betting. However, the low capital outlay necessary, risk management tools available and tax benefits make spread ...
  4. Investing

    Getting Market Leverage: CFD versus Spread Betting

    Leveraged products offer investors the opportunity to get significant market exposure with a small initial deposit. Contracts for difference and spread bets offer two ways to get more leverage.
  5. Insights

    How Commodities Spread Betting Works

    Commodity spread betting is a way to speculate on price movements of various commodities. Here's how it works.
  6. Trading

    Why Financial Spread Betting Gets a Bad Rap

    Spread betting lets speculators trade on price movements. Investors predict whether the spread between the bid price and the ask price will rise or fall.
  7. Trading

    Which Vertical Option Spread Should You Use?

    Knowing which option spread strategy to use in different market conditions can significantly improve your odds of success in options trading.
  8. Trading

    Retail FX Spreads: Do They Even Matter?

    Learn how retail forex spreads affect your ability to trade currencies.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center