Futures Spread

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DEFINITION of 'Futures Spread'

An arbitrage technique in which a trader buys one commodity and sells another contract of the same commodity to capitalize on a discrepancy in prices.

INVESTOPEDIA EXPLAINS 'Futures Spread'

In a futures spread, the goal is to profit from the change in the price difference between two futures contracts while hedging against risk. However, future spreads occur infrequently and when they can be identified, the opportunity for arbitrage is quickly removed though a shift of supply and demand conditions.

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RELATED FAQS
  1. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  2. 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 >>
  3. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  4. How can I hedge my portfolio to protect from a decline in the food and beverage sector?

    The food and beverage sector exhibits greater volatility than the broader market and tends to suffer larger-than-average ... Read Full Answer >>
  5. What techniques are most useful for hedging exposure to the insurance sector?

    Investing style determines the best hedging techniques for the insurance sector. This sector comprises three segments, two ... Read Full Answer >>
  6. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
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