|In this issue of TraderSavvy: |
- Are you as diversified as you should be? What sectors are you invested in?
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- Be a Trend-Spotter! Get Lind-Waldock's Free Technical Analysis Poster
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View additional market commentary on InsideFutures.com
In This Issue:
Matthew Bradbard discusses the pros and cons of trading spreads, and describes the different types.
|August 30, 2007||TraderSavvy.com | Read Past Issues|
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What are spreads all about?
An intracommodity spread is long one future and short another. Both have the same underlier, but they have different maturities. An intercommodity spread is a long-short position in futures on different underliers, both typically have the same maturity. Spreads can also be constructed with futures traded on different exchanges (interexchange spread). Typically this is done using futures on the same underlier, either to earn arbitrage profits or, in the case of commodity or energy underliers, to create an exposure to price spreads between two geographically separate delivery points. For speculators, spread trading offers reduced risk compared to trading outright futures. This is because the long and short futures that comprise a spread are usually correlated, so they tend to hedge one another. For this reason, exchanges generally have less strict margin requirements for futures spreads.
Special Message From Our Author:
Learn the answers to these questions with a no-cost, no-obligation portfolio review. For a limited time MB Wealth will help analyze your Commodity portfolio for free! Whether you are trading futures or options in grains or currencies let MB Wealth help you identify if you are positioned properly in these volatile times.Sign Up Now!
How can you make money trading spreads? By playing a spread one may want the spread to widen or for the spread to narrow. With a spread, you follow the relationship, or difference between the contracts, without having to pick a market direction. When you trade an outright futures position there is only one way that you can make money. If you buy, the market must go up and if you sell, the market must go down. With a spread trade, you can make money whether the markets move higher or lower. If the side you bought goes up more than the side you sold, you make money. If the side you bought goes up and the side you sold remains even, you make money. If the side you bought does not move and the side you sold goes down, you make money. If the side you sold goes down more than the side you bought, you make money. Finally, if the side you bought goes up while the side you sold goes down, you stand to profit even more. Of course, in the above scenarios if the rever
se of what is described above happens, you would lose money. As far as I know, there is no trading method that is risk free. However, spreads add flexibility and versatility to a trader’s arsenal, and generally with less risk. The key here is to find a spread that has a favorable risk/reward dynamic which should be at least 3:1.
The Best Spread I have seen in some time: Long Corn / Short Wheat
Contact us at 888-920-9997 or via e-mail at email@example.com for further details.
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About Today's Author:
Favorite movie - Braveheart
Matthew Bradbard founded and remains President of MB Wealth Corporation. Subsequent to establishing MB Wealth, he worked at various brokerages over his tenure in commodities. Matthew Bradbard has helped identify and develop several trading strategies in numerous commodities markets for his clientele. He has always been a hands-on broker with proficiency in fundamental as well as technical analysis. Over the years he has cultivated relationships with floor traders, farmers, grain marketers, and end users.
His trading decisions are based largely on technical analysis with an emphasis on position trading, identifying trending commodities, and capitalizing on volatile movements both on the long and short side. Fundamentals are also a major consideration; with the wild weather patterns and insatiable demand from emerging markets like India and China for raw materials need always be considered. He expects the secular bull market in commodities to continue for years to come.
Matt strives to offer an informed perspective, helping clients to limit their emotions and greed though executing a logical trading plan. You can reach him at 888-920-9997 or via email at firstname.lastname@example.org. You can also obtain a timely market commentary and trading strategies from Matt in his Weekly Commentary issued every Monday. If you wish to get on MB Wealth’s distribution list email us at email@example.com. For a limited time Matt is also willing to review current Commodity Portfolios to give you his unbiased opinion on open positions as well as the overall environment on Commodities and what he feels is next to come.
The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results.