Futures For You by Carley Garner
SPREAD, SCENARIOS, AND STRATEGIES
My broker seems to use the term “spread” to describe several scenarios and strategies, and sometimes it can be difficult to follow. Can you explain the different uses and definitions?
Those unfamiliar with futures market slang can be misled by the use of some commonly used terms in the world of commodities. Early on, I too found myself confused. Accordingly, I devoted an entire chapter in my latest book, A Trader’s First Book On Commodities, to deciphering futures market slang.
“Spread” is used loosely among futures traders but is primarily associated with three different situations. It is up to the listener to identify what is being discussed. Before we examine each use, let’s remind ourselves that the definition of spread in its simplest form is difference.
• Bid/Ask Spread
Any asset, whether it be futures, options, or baseball cards (from a dealer) has two prices: one that you can buy and one that you can sell. Unfortunately for us, retail traders pay the higher price to buy and must sell at the lower price. The difference between these two prices typically goes to the middleman and is referred to as the bid/ask spread, or simply the spread.