What Is a Spread

What Is a Spread?
A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around to state that a spread is the purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. A spread is also created when a trader owns (is long) the physical vehicle and offsets by selling (going short) futures. Furthermore, a spread is defined as the purchase and sale of one or more offsetting futures contracts normally recognized as a spread by the fact that the two sides of the spread are actually related in some way. This explicitly excludes those exotic spreads put forth by some vendors, which are nothing more than computer generated coincidences which are not in any way related. Such exotic spreads as Long Bond futures and Short Bean Oil futures may show up as reliable computer generated spreads, but bean oil and bonds are not really related. Such spreads fall into the same category as believing the annual performance of the U.S. stock market is somehow related to the outcome of the Super Bowl sporting event. In any case, for tactical reasons in carrying out a particular strategy, you want to end up with:
simultaneously long futures of one kind in one month, and short futures of the same kind in another month. (Intramarket Calendar Spread)
simultaneously long futures of one kind, and short futures of another kind. (Intermarket Spread)
long futures at one exchange, and short a related futures at another exchange. (Inter-exchange Spread)
long an underlying physical commodity, and short a futures contract. (Hedge)
long an underlying equity position, and short a futures contract. (Hedge)
long financial instruments, and short financial futures. (Hedge)
long a single stock futures and short a sector index.
The primary ways in which this can be accomplished are:
Via an Intramarket spread.
Via an Intermarket spread.
Via an Inter-exchange spread.
By ownership of the underlying and offsetting with a futures contract.