Traders need to implement the techniques and indicators in order to observe the best opportunity and grab it before the other investors. There are many techniques and indicators, which generate the accurate buy and sell orders. Accordingly, traders use these techniques and are benefited. Out of most commonly used techniques, one is Spread Technique.
Spread technique is defined as the sale of one or more than one stock future contracts and purchase of one or more than one compensating future contracts. Spread trade is simultaneous purchase of one stock and sale of the related stocks. This is known as leg, which is one unit of it. The traders are said to be in short and long position when the spread trade is executed. Consequently, the threat modifies as of cost variation to the difference between both the sides of the spread. The traders those position themselves in between the speculator and the hedger are called the spreader. Originally, there are three different types of trades in existence. These are Inter market spread, Intra market spread and Inter Exchange Spread.
Intra Market Spread
The intra market spread is produced as the calendar spread. In intra market, the trader is long and short simultaneously in the same market. For example, the trader goes Long Wheat May and the Short Wheat June.
Inter Market Spread
If the trader goes long futures in one market of a certain month and goes short futures in another market but of the same month, then this is inter spread. Example is if the trader is Short June Rice and long June Wheat.
Inter Exchange Market Spread
In inter exchange market spread, the use of contracts are in similar market but on other exchanges. This spread technique is not used widely. These spreads can be converted to the calendar spread by different months. After all the exchanges are different and the markets are similar, the spread can be created. For example, the trader is Long June Wheat in Bombay Stock Exchange and simultaneously the trader is Short July Wheat in Chicago Board of Trade.
Spreads requires less time to analyze the market, hence this is the best trading instrument for beginners. Not only has it acquired less time than other instruments it is also easy to trade. Spreads have reduced the margin requirements and gives higher returns on margin. It has always given innumerable trading opportunities to the traders. One of the most conventional forms of trading is spreading. It lowers the risk of loss. While spreading the traders and technical analysts do not require the live data.