buying hard red winter wheat and selling soft red winter wheat (or vice versa, depending on market conditions). Spread, trading, going long or short involves buying or selling a contract now to take advantage of rising or falling prices in the future. In general, spread trading is considered to be fxpay financial services usa less risky than taking an outright futures position. The idea behind the strategy is to profit from the price difference between the two contracts while, at the same time, hedge against risk. Spread trading is another common strategy used by futures traders. For example, you may buy one contract on cbot and sell one on nymex.
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Futures traders try to predict what the value of an underlying index or commodity will be at some point in the future. For example, you could sell the July contract for corn and at the same time buy the December contract. ) Futures Fundamentals: How To Trade. These are also called inter-commodity spreads. For example, assume you put on a spread in gold. If gold prices rise, the gain on the long position will offset the loss on the short one and the reverse would happen if gold prices fall. whether you go long or short, you must have a large enough balance in your trading account to meet the initial margin requirement for the particular contract. Long trades are the classic method of buying with the intention of profiting from a rising market. Thats because a short trade loses value as the market rises, and since price can theoretically continue rising indefinitely, losses can be unlimited and disastrous. Once price reaches your target level, you buy back the shares (buy to cover) to replace what you originally borrowed from your broker. This involves simultaneously buying and selling two contracts of the same type and price, but with different delivery dates. These spreads are popular in the grain markets due to the seasonality of planting and harvesting.
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