Spread trading is actually establishing opposite positions simultaneously in two different contracts. We know that in futures trading there are buy and sell positions. Therefore, it is the creation of buy and sell positions at the same time.
Spread trading is of two types –
Calendar spread
Where the traded contracts belong to the same commodity or asset in the same proportion but of different maturity months. Buying December Jeera and Selling November Jeera is a calendar spread strategy.
Inter commodity/asset spreads
where opposite positions are taken in different commodities, but of the same expiry, for example buying RM Seed April contract and selling soybean April contract simultaneously.
