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Spreads Plug-in
Expand Your Trading Options
Introduction
The futures
market provides a variety of trading opportunities. In addition to
profiting from rising prices by purchasing futures options or from
falling prices by selling futures contracts, there is an opportunity to
profit from the relationship between different contracts, or spread.
A spread refers to the simultaneous purchase and sale of two or more
different futures contracts.
When
establishing, or "putting on," a spread, a trader looks at the price
differential of the spread rather than the absolute contract price
levels. The contract that is viewed as "cheap" is purchased (a long
position is established). The contract that is viewed as expensive, or
"dear," is sold (a short position is established). If market prices move
as expected, meaning the long position gains in value relative to the
short position, the trader profits from the change in the relationship
between the prices.
The concern for
a spread trader is the change in the relationship between a long
contract and a short one, not the absolute price level of the commodity
in question. Of course, just because you are trading a spread does not
guarantee or eliminate losses. If the long contract decreases in value
relative to the short position, then the spread trader will incur
losses.
The key to
spread trading is in the relative performance of one futures contract to
another. Though some spreads have a basic market bias, known as bull and
bear spreads, the absolute price level of the underlying commodity
contracts is not important, only the relative performance of one
contract versus the other. In other words, a spread trade is a
speculation that one contract will out perform another contract.
Available
online: Introduction Video to the Spreads Plug-in. Visit us at:
http://www.trackntrade.com/tour.htm and select the Spreads video. To
view this video you will need a copy of Microsoft’s Media Player.
Opening a Spreads Chart
To open a
spreads chart, select the Spreads tab in the Control Panel. Select the
two futures contracts from the dropdown menu that you would like to use
in generating a spreads chart. When you have made your selections, click
the Open Chart button and the spreads chart will display.
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The
spread will be listed in the Spread Chart list and the individual
contracts will be listed in the Commodity tab. These spreads that you
open will be part of your chartbook when you save and close it. |
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Spread Margins
In the View
menu, select Spread Margins and the Spread Margins window will open.
 To
modify a margin: Click on the margin in the list, make changes to
the margins, and then select the "Add/Modify" button.
To add a new
margin: Select the commodities for the spread and then type in the
values for the Initial and Maintenance amounts and then click the
"Add/Modify" button.
To restore
factory defaults: To restore the margins to software defaults click
on the "Restore factory defaults" button.
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