Seasonal spread trading

Seasonal spread traders are spread traders that take advantage of seasonal patterns by holding long and short positions in futures contracts simultaneously in the same or a related commodity markets, such as the Chicago Mercantile Exchange, the New York Mercantile Exchange and the London Metal Exchange among others.

The spread is the difference between the simultaneous values of these futures contracts.

The 4 main commodity groups are:

• Energetic, where you can find gasoil and natural gas.
• Metals, such as gold, silver and copper.
• Tropicals, like coffee, cocoa, cotton and sugar.
• Grains and Meat, including lean hogs, corn, soybeans, etc.

Traders may use a combination of fundamental analysis, technical, and historical factors in their analysis. Speculators hope to profit from the relative changes in price between the initial and offsetting positions. Contracts may be spread against different months or different markets.

Traders are concerned with whether the changes in the difference between the sides of the spread are moving in their favor or not. Position traders may hold trades longer and with less risk using spreads.

In order to find the information on seasonal spread, many traders use algorithms retrieving past commodity volatility and performance.

Lower good faith margin deposits required by commodity exchanges to trade spreads means more opportunities to leverage up and diversify positions. Spreads may behave smoother than the underlying futures contracts.

See also

• Speculation
• Jesse Livermore

External links

• Reminiscences of a Stock Operator by Edwin Lefèvre (best-selling biography of Jesse Livermore) multiple reissues, last in 2004 (ISBN 0-471-67876-7)
• Futures Spread Trading by Steven A. Mitchell
• Seasonality at futures market by SeasonAlgo
• Detailed description for futures spread trading by SeasonAlgo