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Spreading Advantages:
• Lower Spreading Margin Requirements in most cases for commodity futures spreads.
• Five ways to make a profit in futures spreads vs. only one way in open futures positions!
1. Long leg of the goes up, short leg goes down.
2. Long leg of the spread goes up, short leg is unchanged.
3. Long leg of the futures trade is unchanged, short leg drops.
4. Both legs go up but long leg goes up more than short leg.
5. Both legs of the trade drop, but long leg drops less.
• You can exit futures spreads on lock-limit days, when it is impossible to exit open positions.
• Because of the above factors I consider spreads to be a safer trading vehicle than open long or short futures contracts. However, the National Futures Association, of which I’m a Member, states that commodity futures spreads are not safer than open position futures trading.
I have the latest margin sheet displayed under the "Margins" heading. You can see the difference between open futures positions and futures spread margins. I’ll update this page frequently, as margins for both open positions and spreads change overnight at times due to the volatility of the markets!
One last note: Commodity futures spreads have one disadvantage; you will not be able to place stop-loss orders in spreads. I use mental stops in all my spread trading strategies and as soon as the trade gets close to my exit point, I usually blow out at the market.
Call or email me if you have questions about the advantages or disadvantages in trading commodity futures spreads. You’ll get a quick response!
Bob
THERE IS A RISK OF LOSS
IN COMMODITY FUTURES TRADING.
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
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