Term of the Day

Seasonal spread trading

Seasonal spread traders are spread traders that take advantage of seasonal patterns by holding long and short contracts simultaneously in the same or a related commodity markets. The spread is the difference between the values of these securities. Taking advantage of spreads when they are following normal seasonal patterns may be a prudent, reliable way to take part in the futures markets.

Traders may use a combination of fundamental, technical, and historical factors in their analysis. Speculators hope to profit from the relative changes in price between the initial and offsetting positions. Contracts may be spread against different months or different markets. Traders are concerned with whether the changes in the difference between the sides of the spread are moving in their favor or not. Position traders may hold trades longer and with less risk using spreads.

Lower good faith margin deposits required by commodity exchanges to trade spreads means more opportunities to average up & diversify positions. Spreads may behave smoother than the underlying futures contracts.



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