Spread Trading - A Simple Trading Strategy For Maximizing Your Profits

5/2/2017 Spread Trading A Simple Trading Strategy for Maximizing Your Profits
Spread Trading A Simple Trading Strategy for Maximizing Your Profits
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29th September 2010, 02:28 PM #1
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Spread Trading A Simple Trading Strategy for Maximizing Your Profits
In today�s volatile and sometimes uncertain markets, traders are looking for a trading strategies aims at protecting their profits while minimizing
losses and managing risk. Hedging your trades using a 'Spread' is one such strategy. Commodity futures spread trading offers an exciting path for
potential profits often overlooked by futures traders. Like anything else worthwhile, Commodity futures Spread Trading is not a �piece of cake!�
Futures are a "zerosum" game. One of my good friend says it as �minussum� game as it include brokerage & other charges in it. You don't want to
be part of the "zero!" Take your time for trading. Hard work and discipline are required for trading. Learn things your futures broker never told you
and perhaps never knew. Learn what the professional traders don�t want you to know. Feel empowered and knowledgeable when you place your
http://www.traderji.com/commodities/45386spreadtradingsimpletradingstrategymaximizingyourprofits.html 1/12
spread orders. And always remember that the Exchanges were set up for their Members, and not for you. The only purpose these professional
traders/brokers have is to take as much of your money as they can from you.
So I have decided to share my knowledge of spread trading because I realize that most current traders have never been exposed to it.
A spread is defined as buying a futures contract and selling a related futures contract to profit from the change in the differential of the two contracts.
In this the risk is in the difference between two contract prices rather than the risk of an outright/naked futures contract.
There are different types of spreads and different methods for using each:
Intramarket Spreads (My favourite Trading Strategy)
An Intramarket spreads are done only as calendar spreads. In this method you are long and short futures in the same market, but in different contract
months. An example of an Intramarket spread is that you are Long Dec Gold contract and simultaneously Short Oct Gold contract or viceversa
depending on the spread opportunity.
For Example:
The closing price on 14th Sep 2010 for Gold future Dec contract @ Rs. 19284 and Oct contract @ Rs. 19195. Spread difference between these two contract
is Rs. 89 and so my Spread strategy would be that, I would have buy Gold Dec contact @ Rs. 19284 and have sold Oct contract @ Rs. 19195. On 25th Sep
2010, the closing price for Gold future Dec contract @ Rs. 19281 and Oct contract @ Rs. 19135. So on this day I would have squared off my position by
selling Gold Dec contract @ Rs. 19281 & Oct contract @ Rs. 19135. So Spread difference between these two contract is Rs. 146 and my gross gain/loss
from this spread trade is Rs. 57 per lot. (i.e. Rs. 57 x 100 = Rs. 5,700 per lot). My net return, assuming brokerage @ 0.01%, will be Rs. (5714) x 100 = Rs.
4300 per lot which is nearly 10% of the spread margin for Gold.
Contract Buy Sell Return Brkg. + Other chrgs. Net Return

Gold Dec 19284 19281 3 7 10
Gold Oct 19135 19195 60 7 53
So the net return will be [ (5310)*100 ] Rs. 4300 per lot.
This month I had applied a spread strategy on Lead & Zinc which gave me a return of Rs. 18,000 on an investment of Rs. 45,000 on two lots within 5
trading days (i.e. Return of 40%)
For Spread trading we required only 25% of margin and margin required for Lead/Zinc is around Rs. 25,000 per lot. So two lots for spread trading
needs:
Lead = 2 lots x 25,000 =50,000 & Zinc = 2 lots x 25,000 =50,000

Total = 1,00,000
Total Spread margin for 2 lots = 25% x 1,00,000 = Rs. 25,000

For M2M = Rs. 20,000
Intermarket Spreads
An Intermarket spread can be done by going long futures in one commodity and short futures of the same expiry month in another commodity. For
example: Short May Wheat and Long May Soybeans.
Inter Exchange Spreads (Everybody knows about it as �Arbitrage Trading�)
An Inter Exchange spread can be done by going long futures contract in one exchange and simultaneous short the same futures contract on another
exchange in the hope the sale price is greater than the purchase price.
What makes Spread Trading such a profitable and easy way to trade?
Spreads trading is considerably lesser riskier in trading as compared with straight futures trading. Because in spread trading every position is a hedge
position & trading the difference between two contracts in an Intramarket spread results in much lower risk to the trader.
Spreads on futures normally require lower margins than any other form of trading. This result in much greater efficiency in the use of your capital
required for trading.
Drawbacks:
You need to put the right strategy according to your spread position else you will loss due to the contract expiry & M2M issue.
It doesn�t provide an opportunity on daily basis (even if it does, brokerage issue comes in between). Once or twice in a month you will get the
opportunity for spread trading on each commodity (sometimes you will not get any opportunity in a month for a commodity to do spread trading).
As a commodity futures spread trader, you will have the keys to intramarket and intermarket spreads. See yourself gaining more confidence with
every futures spread trade you do. These are the basic which I explained here regarding Spread. All what you need to do is that explore more about
this.
So, let�s go! And do well in Spread Trading.
Spread Trading Strategy & Calculation
Link: http://www.traderji.com/commodities/...tml#post474453
Regards,
iGuru
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Last edited by iGuru; 5th October 2010 at 01:41 AM. Reason: Updated the Link for Strategy and calculation for Spread Trading
The Following 19 Users Say Thank You to iGuru For This Useful Post:
alroyraj (1st October 2010), angira (3rd October 2010), balab (23rd December 2010), bloodmoney (30th September 2010),
comm4300 (29th September 2010), cooldudeRE (29th September 2010), deevee (30th September 2010), GuluGulu (4th November
2010), gurjeet (4th November 2010), hyraj (2nd October 2010), Pralhad (5th October 2010), Raj133 (4th October 2010),
sanjay_arora (11th November 2010), sumeetsj (7th December 2010), Tradejack (2nd October 2010), veluri1967 (2nd October
2010), vijayakishorebabu (1st October 2010), VJAY (29th September 2010)
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2nd October 2010, 11:47 AM #2
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Re: Spread Trading A Simple Trading Strategy for Maximizing Your Profits
thank you for introducing this low risk strategy.
looks like spread opportunities pay off nicely.
what would be the range of spread that you'd consider as "abnormal" that'd trigger a spread opportunity?
The Following 2 Users Say Thank You to comm4300 For This Useful Post:
iGuru (3rd October 2010), VBS2010 (25th November 2010)
2nd October 2010, 07:10 PM #3
sprintravi75 Join Date: Jul 2009
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hi iguru
thanks for the nice post and startegy. but pls let me know how to identify the right contract.
regards
ravi
2nd October 2010, 07:38 PM #4
Join Date: Jun 2010
Posts: 89
iGuru Thanks: 25
Quote:
Originally Posted by sprintravi75
hi iguru
thanks for the nice post and startegy. but pls let me know how to identify the right contract.
regards
ravi
Hi Ravi,
currently I’m working on that and hope to come up with a thread soon regarding Spread strategies, methods & the script on which it will be profitable
etc. I will update the link here once I will done with it.
Regards,
iGuru
2nd October 2010, 09:25 PM #5
Join Date: Sep 2010
Posts: 70
hyraj Thanks: 78
Nice work Guru........
Keep it uppppp, we r al with U Guru
I read it, m also interested about to kno th diffrnt stategies of Commodity.
Especially Guru think about th metals like Al,Cu,Lead,Zn whose lot size is in btwn 1000to5000. Bt i think Al & Lead being having
lot size 5000, they hav very little price movements.....so it will b worth important if u find the best spread srtategy........
A request u to Guru is that whr i can avail th historical data of th commodities(At least regarding with metals)....plz convey me url
of any site if u know.
With Good Wishes
Thankz
3rd October 2010, 02:13 AM #6
Join Date: Jun 2010
Posts: 89
iGuru Thanks: 25
Quote:
Originally Posted by hyraj
Nice work Guru........
Keep it uppppp, we r al with U Guru
I read it, m also interested about to kno th diffrnt stategies of Commodity.
Especially Guru think about th metals like Al,Cu,Lead,Zn whose lot size is in btwn 1000to5000. Bt i think Al & Lead being
having lot size 5000, they hav very little price movements.....so it will b worth important if u find the best spread
srtategy........
A request u to Guru is that whr i can avail th historical data of th commodities(At least regarding with metals)....plz convey
me url of any site if u know.
With Good Wishes
Thankz
Hi Raj,
Thanks for your comment. I�m working on that only. So that it will be helpful for every member here.
Dear friend, I would like to clear one thing that Spread doesn�t give an opportunity to trade intraday (very rarely you will find any intraday
opportunity). But it is ideal & worth for holding a position from a day to a month. Because a professional Spread trader don�t trade in 1 lot....... but
they trade in 520 lots depending upon their holding & risk taking capacity.
I would like to tell you one of the real example that happened on the month of JulyAug this year which shocked and surprised me when I got to know
about it (as I am not suppose to tell anyone).
One of my dealer called me and he asked me that one of his client is interested to speak with me to understand more about commodity trading, as that
client had make a loss of around Rs. 2,00,000 trading in Lead & Zinc only in some couple of months. (as he trade in 1040 lots at a time)
While discussing about commodity market & trading, just I mentioned about the spread trading and I gave him an example of a spread difference of
around Rs. 7 in Aluminium & Zinc. I told him within a month and half it will come down to around zero and even to negative figs as I am studying
and experimenting the different spread strategies at that time. I asked him to keep an eye on it whether it�s going to happen or not. (Personally I
don�t advice anyone for doing spread in Aluminium & lead/Zinc. As it is very risky as compared to any other commodities....... even I don�t think
of trying to do it)
After a month I got a call from him thanking for giving him the advice for that spread strategy (actually which I didn�t give him) and that actually
helped him to recover his losses. He told me that he made a profit of around Rs. 5.5 per lot on 20 lots which comes to around Rs. 5,50,000.
Since then I never suggested and said anything regarding Spread trading to anyone (Until I come up with the article).
Here, I�m not showing you the dream with above example, but what I�m trying to tell you that what can be done and achieve with Spread trading.
Really friend if I had more than Rs. 4,00,000 with me then I must be doing the Spread trading only (I never do the intraday trading).
As I told in the article w.r.t. to Spread Trading is that applying it requires lots of skill, knowledge & experience to put the right strategy else it will be a
losing position, if it is so simple & profitable always then everyone in the market must be doing this only and nothing else.
You can get the historical data for commodity at MCX site.There you can get it by:
http://www.mcxindia.com/
Market Data (in Homepage) � Bhav Copy Bhav Copy (Commoditywise) (clicking at the check box)
Regards,
iGuru
The Following 3 Users Say Thank You to iGuru For This Useful Post:
hyraj (3rd October 2010), Pralhad (5th October 2010), VJAY (3rd October 2010)
3rd October 2010, 02:39 AM #7
Join Date: Sep 2010
Posts: 70
hyraj Thanks: 78
Quote:
Originally Posted by iGuru
Hi Raj,
�
Thanks for your comment. I m working on that only. So that it will be helpful for every member here.
�
Dear friend, I would like to clear one thing that Spread doesn t give an opportunity to trade intraday (very rarely you will find any intraday opportunity).
�
But it is ideal & worth for holding a position from a day to a month. Because a professional Spread trader don t trade in 1 lot....... but they trade in 520
lots depending upon their holding & risk taking capacity.
I would like to tell you one of the real example that happened on the month of JulyAug this year which shocked and surprised me when I got to know about
it (as I am not suppose to tell anyone).
One of my dealer called me and he asked me that one of his client is interested to speak with me to understand more about commodity trading, as that client
had make a loss of around Rs. 2,00,000 trading in Lead & Zinc only in some couple of months. (as he trade in 1040 lots at a time)
While discussing about commodity market & trading, just I mentioned about the spread trading and I gave him an example of a spread difference of around
Rs. 7 in Aluminium & Zinc. I told him within a month and half it will come down to around zero and even to negative figs as I am studying and
� �
experimenting the different spread strategies at that time. I asked him to keep an eye on it whether it s going to happen or not. (Personally I don t advice
�
anyone for doing spread in Aluminium & lead/Zinc. As it is very risky as compared to any other commodities....... even I don t think of trying to do it)
�
After a month I got a call from him thanking for giving him the advice for that spread strategy (actually which I didn t give him) and that actually helped
him to recover his losses. He told me that he made a profit of around Rs. 5.5 per lot on 20 lots which comes to around Rs. 5,50,000.
Since then I never suggested and said anything regarding Spread trading to anyone (Until I come up with the article).
� �
Here, I m not showing you the dream with above example, but what I m trying to tell you that what can be done and achieve with Spread trading. Really
friend if I had more than Rs. 4,00,000 with me then I must be doing the Spread trading only (I never do the intraday trading).
As I told in the article w.r.t. to Spread Trading is that applying it requires lots of skill, knowledge & experience to put the right strategy else it will be a
losing position, if it is so simple & profitable always then everyone in the market must be doing this only and nothing else.
You can get the historical data for commodity at MCX site.There you can get it by:
http://www.mcxindia.com/
Market Data (in Homepage) � Bhav Copy Bhav Copy (Commoditywise) (clicking at the check box)
Regards,
iGuru
================================================== ========Thankz Guru once agn
What a nice and elaborate explaination........keep it up
Wish u al th best n do work on it...our wishes r with u.
U behaved like a sailor to th person whose ship was amidst of loss...so here i quote u Guru...that "The person who helps other
without any EXPECTAION...GOD is always with HIM"
We expect soon u'll workout it n th outcome will b surely fruitfull.
Regards
HYRaj
The Following User Says Thank You to hyraj For This Useful Post:
iGuru (3rd October 2010)
3rd October 2010, 06:16 PM #8
Join Date: Sep 2010
Posts: 70
hyraj Thanks: 78
iGuru
Member
Intermarket Spreads (Never explored this one)
An Intermarket spread can be done by going long futures in one market and short futures of the same month in another market.
For example: Short May Wheat and Long May Soybeans.
================================================== ======
here Guru
one market and another marketDo u mean in one commodity and in another commodity
3rd October 2010, 08:16 PM #9
Join Date: Jul 2009
Posts: 181
sprintravi75 Thanks: 36
dear iguru
u are really a guru in this. pls tell me can this be applied to futures and options in indian market
regards
ravi
3rd October 2010, 11:25 PM #10
Join Date: Jun 2010
Posts: 89
iGuru Thanks: 25
Quote:
Originally Posted by hyraj
iGuru
Member
Intermarket Spreads (Never explored this one)
An Intermarket spread can be done by going long futures in one market and short futures of the same month in another
market. For example: Short May Wheat and Long May Soybeans.
================================================== ======
here Guru
one market and another marketDo u mean in one commodity and in another commodity
Hi Raj, Thanxs for your comments.
Yes, it means going long in one commodity and short in another commodity with same expiry. eg: Lead & Zinc, Gold & Silver....... anything but it need
to have a relation between the two commodities (like: correlation, same asset class, lot size etc.)
Regards,
iGuru
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The Following User Says Thank You to iGuru For This Useful Post:
hyraj (4th October 2010)
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Spread Trading - A Simple Trading Strategy For Maximizing Your Profits

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Intramarket Spreads (My favourite Trading Strategy)

Contract Buy Sell Return Brkg. + Other chrgs. Net Return

So the net return will be [ (5310)*100 ] Rs. 4300 per lot.

Lead = 2 lots x 25,000 =50,000 & Zinc = 2 lots x 25,000 =50,000

Total Spread margin for 2 lots = 25% x 1,00,000 = Rs. 25,000

Inter Exchange Spreads (Everybody knows about it as �Arbitrage Trading�)

Spread Trading Strategy & Calculation

Hi Raj, Thanxs for your comments.

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Spread Trading - A Simple Trading Strategy For Maximizing Your Profits

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Spread Trading - A Simple Trading Strategy For Maximizing Your Profits

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5/2/2017 Spread Trading ­ A Simple Trading Strategy for Maximizing Your Profits

Traderji.com > THE MARKETS > Commodities User Name User Name Remember Me?

Register FAQ Calendar Today's Posts Search

Page 1 of 6 1 2 3 > Last »

Intramarket Spreads (My favourite Trading Strategy)

Contract Buy Sell Return Brkg. + Other chrgs. Net Return

So the net return will be [ (53­10)*100 ] Rs. 4300 per lot.

Lead = 2 lots x 25,000 =50,000 & Zinc = 2 lots x 25,000 =50,000

Total Spread margin for 2 lots = 25% x 1,00,000 = Rs. 25,000

Inter Exchange Spreads (Everybody knows about it as �Arbitrage Trading�)

Spread Trading ­ Strategy & Calculation

Hi Raj, Thanxs for your comments.

Page 1 of 6 1 2 3 > Last »

Digg del.icio.us StumbleUpon Google

Vous aimerez peut-être aussi

5/2/2017 Spread Trading A Simple Trading Strategy for Maximizing Your Profits

So the net return will be [ (5310)*100 ] Rs. 4300 per lot.

Spread Trading Strategy & Calculation