INSIGHTSA futures spread, also known as a calendar spread or inter-market spread, is a trading strategy that takes advantage of price differences between two futures contracts. These contracts might differ by expiration dates or represent related commodities, such as different grades of the same product or different maturities of the same financial instrument. Traders typically establish a spread by going long on one contract while shorting another. This can reduce overall risk exposure and harness market inefficiencies.
For example, a trader may buy a crude oil futures contract set to expire in six months while simultaneously selling a contract to expire in three months. If the price of the longer-dated contract increases relative to the shorter one, the trader can realize a profit once the position is closed. Futures spreads are valuable in many markets, including commodities and financial instruments, as they often require less capital than outright futures trading.