Futures Spread


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.

BREAKING DOWN '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.

  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. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  4. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  5. Implied Volatility - IV

    The estimated volatility of a security's price.
  6. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
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  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  3. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

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