Futures Spread Trading Terms

A futures spread (or spread) is a long-short futures position that provides exposure to a spread or difference in two prices. If both futures are traded on the same exchange, two types of spreads are possible:

arrow An intracommodity (intramarket spread) (or calendar spread) is long one future and short another. Both have the same underlying commodity or financial instrument, but they have different maturities.

arrow An intercommodity (Intermarket) spread is a long-short position in futures on different underlying commodities or financial instruments. Although not necessary, both typically have the same maturity.

arrow An interexchange (Inter-exchange) spread is a long-short position in futures on different underlying commodities or financial instruments each residing on a different futures exchange.  Although not necessary, both typically have the same maturity.

Inter exchange Spreads can also be constructed with futures traded on different exchanges. For the purpose of arbitrage, i.e., using futures on the same underlying, either to earn arbitrage profits or, in the case of commodity or energy markets, to create an exposure to price spreads between two geographically separate delivery points.

Spread trading is the trading of futures spreads. For speculators, spread trading offers reduced risk compared to trading outright futures. This is because the long and short futures that comprise a spread are usually correlated, so they tend to hedge one another. For this reason, exchanges generally have less strict margin requirements for futures spreads.