Make Money with
Financial Spread Trading

A lot of traders are missing out on one of the best ways to make money in the markets.  They are passing up the area of financial spread trading.

Did you know that in financial spread trading, a spread falls into one of two categories?

  • Ratio Spread

    To form a ratio spread as seen in the forex currency markets, the spread is created by dividing the price of one currency by the price of another.  An example of this would be the euro/dollar spread.  The slash between euro and dollar is there for a reason it indicates that to form the spread you are dividing the euro by the dollar. Doing so produces the value of the spread.  Trading forex pairs is simply a form of financial spread trading

  • Differential Spread:

    To form a differential spread as seen in the futures currency markets, the spread is created by subtracting the price of one currency from the price of another. An example of the same kind of spread, i.e., a spread between the euro and the dollar, you would subtract either the euro from the dollar or subtract the dollar from the euro.  The reason for the variation is that with a differential spread you are making money, only when the spread line is rising. Therefore whichever way produces a rising spread line is the way you want to enter the spread in the market when you are engaged in financial spread trading.

Financial spread trading in the forex markets is limited to trading spreads among currencies.  However, financial spread trading in futures offers the opportunity to create a spread among different months of a Eurodollar contract, or a spread between Eurodollars and Treasury notes.  The NOB spread, spreading Treasury notes minus Treasury bonds is a well-known spread.  Here again, as with currency spreads among futures contracts, you subtract only in the direction that causes the spread line to rise.  So if subtracting bonds from notes created a falling spread line, you would simply turn the spread around and subtract notes from bonds to create a rising spread line.

There are additional spreads that can be created by using futures contracts in you financial spread trading. Any combination of interest rate futures can be spread one against the other.  One famous spread is called the TED spread, which is a spread created by taking the difference between Treasury bills and Eurodollars.  Many knowledgeable financial spread traders follow this spread and variably subtract one from the other to create a rising spread line.

Financial Spread Trading Intraday

One of the most exciting new ways to trade a spread is that of day trading financial spreads.  Day trading of currency spreads is by no means limited to the forex markets.  Exciting, profitable, and money-making spreads are also done intraday by knowledgeable financial spread traders, and it is rather startling to realize how few traders know about or understand these dynamic intraday spreads.  Knowledgeable spread traders will often create an intraday spread between euros and Swiss francs, or a spread between British pounds and Japanese yens.  The moves in these spread are dramatic and are easily discerned.  A trader can pick up a newspaper, hear on TV, or read the news on a PC to discover that one nation’s currency is outperforming the currency of another nation.  A spread created between the two will perform well in virtually any time frame.

The world of financial spread trading is growing.  Increasingly traders in nations around the world are finding that financial spread trading, whether it be on a short-term intraday basis or a long-term daily basis is a great way to make money.



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