- C. That is an inter-exchange spread.
- 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.
- A. If the question were about the basis, without description, rather than "the basis for the spread," -$5 would also be correct.
- C. The others are false.
- 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.
- A. Speculators are long the output and short the input. The reverse crush spread is an example.
- 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.
- 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.
- B. As this type of spread is speculative, margin requirements would be higher.
- 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
TradingFutures investors flock to spreads because they hold true to fundamental market factors.
InvestingIt's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
InvestingSpread betting is a speculative practice that began in the 1940s as a way for gamblers to win money on changes in the line of sporting events. But by 1970, the phenomenon trickled into the financial ...
TradingWriting bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
TradingThis trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
InvestingThe 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 ...
InvestingSpread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
TradingSpread betting lets speculators trade on price movements. Investors predict whether the spread between the bid price and the ask price will rise or fall.