But spreads are hardly risk-free. Since each side, or "leg," of the spread may be negatively affected by fundamental or technical factors in the markets, the widening or narrowing of a spread may exceed the broader average movement in the market. Four kinds of relationships may exist between each leg of the spread. First, spreads between different delivery months for the same commodity for example, buying and selling wheat are known as intracommodity or interdelivery spreads.

Second, juxtaposing two different commodities, such as gasoline and heating oil, is known as intercommodity spreading.

Cross pair trading is present on any spot exchange

Third, an intermarket spread is the buying and selling of similar commodities on different markets, such as buying oil futures on the New York Mercantile Exchange and selling on the International Petroleum Exchange. And fourth, supply-chain, or source-product, spreads combine commodity positions on two different stages of production, as in buying crude oil futures and selling gasoline contracts.

Of the four types, intracommodity spreads tend to be the most conservative positions, while intercommodity spreads are apt to carry the most risk because they are exposed to wider and less predictable market influences. A trader interested in spreading doesn't have to start from scratch looking for price relationships that would offer a lucrative spread.

Certain types of spreads are traded so routinely that they have nicknames and somewhat predictable—although by no means guaranteed—results. These include the U. As an example of an intracommodity spread, say a trader anticipates that the price difference between March and May wheat futures will widen. When there is no anticipated shortfall in supply, the deferred contract in this case, May tends to have a higher price than the more immediate contract March.

Since the trader expects that spread to grow, she sells a contract one contract equals 5, bushels for the lower price March and buys one contract for the higher price May. In market terminology, she has taken a short position in March and gone long on May; she has therefore bought the spread, as these positions combine to allow for maximum growth in the spread. All rights reserved. By Bruce Blythe August 16, 5 min read. Key Takeaways Spread trading strategies can be applied in stocks, bonds, currencies, commodities, and other assets.

Pairs trading is a common spreading strategy, typically involving a bullish position in one stock and a bearish position in another. Options traders have dozens of spread trading strategies from which to choose, depending on their objectives. A Quick Example of a Calendar Spread A calendar spread can be created using any two options of the same stock, strike, and type either two calls or two puts , but with different expiration dates.

Are options the right choice for you? Learn more about the potential benefits and risks of trading options. Start your email subscription. Recommended for you. Related Videos. Learn the Setup, the Roll Decision, and the Risks 3 min read. Call Us Site Map. Pairs trading requires active monitoring and management and is not suitable for all investors. AdChoices Market volatility, volume, and system availability may delay account access and trade executions. This link takes you outside the TD Ameritrade Web site. Clicking this link takes you outside the TD Ameritrade website to a web site controlled by third-party, a separate but affiliated company.

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Cancel Continue to Website. I cannot image managing my trading portfolio or look for new strategies without it. SeasonAlgo is excellent product substituting seasonal strategy searching service and charting service for one fee. I am using this service almost every day and can not imagine to trade spreads without it any more.

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I appreciate especially Summary, TA, Search etc. My percentage of profits has incresead in the last week and SeasonAlgo is the best partner.

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Thank you and wish you all the best. Seasonalgo is complex toolbox for seasonal trading of commodities. It is usefull for trading of seasonal spreads or single commodities. SA is the first complex application I have seen and it replace several different services I used before for my trading.

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SeasonAlgo is really great product. It saves my time during seasonal spread analysis. Really great function is its possibility to filter spreads by many different filters and then find the one which fits for you. Perfect tool. I can recommend it to all spread traders.

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I can't imagine my work without this tool. I like this software , I use technical pattern of spread line to recognize reversals and pullback on this line. The Backtest give you confidence about the patterns. I am using SeasonAlgo almost every day since March I cannot imagine to live without it. For me, it is the essence and core of any of my live trades.

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Very useful and user friendly analytical platform. I know about some similar services for commodity spreads on the internet and must say, that SeasonAlgo is the best for me. It saves me a lot of time. I appreciate such a good work of the authors. Thank you for excelent work boys! There is no better tool to analyze spreads out there. From my point of view there is no need to have anything else for spread analysis.

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Really excellent analyzing tool for spread traders. I can not imagine spread trading without SeasonAlgo. Great piece of software. It helps me to search through a huge amount of spreads with minimum effort and afterwards let's me do an advanced analysis of each of chosen spread. When I started trading spreads, I needed only basic graphs. Later I found out that understanding spreads needs further analysis and it needs more advanced tools.



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SA is an advanced tool, and so far the best that I have encountered. Overall great tool for both analyzing and keeping track of your spread trades. Only one you will need for spreads! I highly recommend SeasonAlgo as a primary software for Spread trading and analysis. Take it!!!