Spread Trading – Futures vs FX

Futures – In Futures Spread Trading the trader simultaneously buys (longs) and sells (shorts) futures contracts for two related commodities or securities. The rationale behind this kind of strategy is that as futures contracts approach maturity, prices of different contacts will often change differently over time, leaving savvy traders an opportunity to profit. We explain this in more detail below, but overall spread trading offers good traders the opportunity to profit off contract spreads instead of taking a position on the market’s direction.

Some traders may also pursue this kind of trade, believing they reduce their overall exposure to the market, since losses from longs will be offset from shorts and vice-versa. Futures spread trading generally is a more conservative approach to trading overall than simply investing in one futures contract.

FX – In FX, spreads traders seek to buy a currency cross in order to take advantage of rollover interest, while simultaneously shorting a similar pair to reduce their exposure to unpredictable fluctuations in price.