Commodity-Product Spread

AAA

DEFINITION of 'Commodity-Product Spread'

The commodity-product spread is the difference between the price of a raw material commodity and price of a finished product created from that commodity. A common commodity-product spread is the "crack spread". This is the spread between the price of crude oil and the price of refined oil products.

INVESTOPEDIA EXPLAINS 'Commodity-Product Spread'

Betting on changes in the commodity-product spread is a popular trade in the futures market. The trade can be very useful for firms which convert raw materials to products. These firms could buy commodity futures and sell product futures, hedging risk and helping to lock in profit margins.

RELATED TERMS
  1. Spread

    1. The difference between the bid and the ask price of a security ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Futures

    A financial contract obligating the buyer to purchase an asset ...
  4. Futures Exchange

    Traditionally, a term referring to a central marketplace where ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
RELATED FAQS
  1. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  2. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  3. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  4. How can electricity be traded as a commodity by an individual investor?

    Electricity can be traded in the financial marketplace like any other commodity. Electricity futures trading offers an alternative ... Read Full Answer >>
  5. What are some of the major regulatory agencies responsible for overseeing financial ...

    There are a number of agencies assigned to regulate and oversee financial institutions and financial markets, including the ... Read Full Answer >>
  6. What types of corporations would be expected to have higher growth rates than more ...

    Investors looking for corporations with higher-than-average growth rates have several factors to consider. Although younger ... Read Full Answer >>
Related Articles
  1. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  2. Options & Futures

    Trading Gold And Silver Futures Contracts

    If you are a hedger or a speculator, gold and silver futures contracts offer a world of profit-making opportunities.
  3. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  4. Options & Futures

    An Introduction To Managed Futures

    Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
  5. Options & Futures

    Money Management Matters In Futures Trading

    Learn how this overlooked area of trading can help improve your gains.
  6. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  7. Chart Advisor

    Falling Coffee Prices Are Creating Opportunity

    Falling coffee prices is creating an opportunity for strategic traders. We'll take a look at some ideas.
  8. Stock Analysis

    Southwest & Cheap Oil: The Perfect Combination?

    Discover how falling oil prices (and well-timed futures contracts) benefit Southwest Airlines.
  9. Economics

    As Fed Prepares To Move, Gold Is Losing Its Luster

    Last week’s Semi-Annual Monetary Policy Report to Congress returned investors’ focus back to the fundamentals, and a general upbeat of the economy.
  10. Chart Advisor

    4 ETFs For Trading Gold's Falling Prices

    Traders looking to trade gold will likely look to add these for funds to their portfolio.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!