a spread trade is the simultaneous purchase of one security and sale of a related security, called legs, as a unit. Spread trades are usually executed with options or futures contracts as the legs, but other securities are sometimes used. They are executed to yield an overall net position whose value, called the spread, depends on the difference between the prices of the legs. Common spreads are priced and traded as a unit on futures exchanges rather than as individual legs, thus ensuring simultaneous execution and eliminating the execution risk of one leg executing but the other failing.
a spread trade is the simultaneous purchase of one security and sale of a related security, called legs, as a unit. Spread trades are usually executed with options or futures contracts as the legs, but other securities are sometimes used. They are executed to yield an overall net position whose value, called the spread, depends on the difference between the prices of the legs. Common spreads are priced and traded as a unit on futures exchanges rather than as individual legs, thus ensuring simultaneous execution and eliminating the execution risk of one leg executing but the other failing. Spreads can considerably lessen the risk in trading compared with straight futures trading. Every spread is a hedge. Trading the difference between two contracts in an intramarket spread results in much lower risk to the trader.
A common use of the calendar spread is to "roll over" an expiring position into the future. When a futures contract expires, its seller is nominally obligated to physically deliver some quantity of the underlying commodity to the purchaser. In Stock Tips, this is almost never done; it is far more convenient for both buyers and sellers to settle the trade financially rather than arrange for physical delivery. This is most commonly done by entering into an offsetting position in the market.
a spread trade is the simultaneous purchase of one security and sale of a related security, called legs, as a unit. Spread trades are usually executed with options or futures contracts as the legs, but other securities are sometimes used. They are executed to yield an overall net position whose value, called the spread, depends on the difference between the prices of the legs. Common spreads are priced and traded as a unit on futures exchanges rather than as individual legs, thus ensuring simultaneous execution and eliminating the execution risk of one leg executing but the other failing. Spreads can considerably lessen the risk in trading compared with straight futures trading. Every spread is a hedge. Trading the difference between two contracts in an intramarket spread results in much lower risk to the trader.
A common use of the calendar spread is to "roll over" an expiring position into the future. When a futures contract expires, its seller is nominally obligated to physically deliver some quantity of the underlying commodity to the purchaser. In Stock Tips, this is almost never done; it is far more convenient for both buyers and sellers to settle the trade financially rather than arrange for physical delivery. This is most commonly done by entering into an offsetting position in the market.
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