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.
The intra market spread is produced as the calendar spread. Here the trader is long and short simultaneously in the same market. For example, the trader goes Long Wheat May and the Short Wheat June.
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.
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.