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Futures Spread Trading Capabilities

Video Transcript

In this video, we want to highlight some of Track ‘n Trades spreads trading capabilities.

The first thing you’ll notice, in addition to the spreads tab, is that we have an additional chart selection type in the main charts tab window. This gives us one central location for opening all of our charts, whether they be regular contract charts, or spread charts.

To open a spread chart, simply click the futures spreads radial button, which as you see, changes the commodity selector and provides us with an additional selection box.

I think it’s important to mention, that a commodity contract spread is the purchase of one commodity, or commodity contract month, and the sell of another, this is not commodity options spread trading, as is sometimes confused.

For example, when we click the first drop down menu, we see a list of commodities, broken down by category.

The first is Intermarket Spreads, or what we call ‘commodity’ spreads. This is when we buy one commodity, such as July Wheat, and we sell another totally different, but related commodity, such as July Corn.

When we put on a spread, we are, in essence, not actually tracking and trading the price of the individual commodities themselves as much as we are trading the varying price differences between the two commodities…or, the spread between the two commodity prices.

Let’s take a look at the next type of spread…

This spread, known as an Inter-Exchange Spread, is where we buy two commodities, which are typically the same, but reside on two different exchanges.

For example, if we open up the Kansas City Board of Trade Wheat, we can then spread it against the Chicago Board of Trade Wheat, buying one, and selling the other…across two different exchanges.

Now, let’s take a look at what is probably considered to be the most common spread type, that being the Intra-Market Spread, or what we call a Futures Time Spread.

A time spread is when we buy one commodity, let’s say July Sugar, and we sell that same exact commodity, but just a different contract month, like Mar Sugar.

The question that is most often asked about spread trading, is what’s the advantage of trading spreads? If I’m buying corn, and selling corn, wouldn’t my position then, in essence, be neutral, if for every penny I make on my long position, don’t I then lose on my short position? If that’s the case, then what’s the point?

The point is, that we are now, for the most part, hedged against any kind of major move in the market, we are protected, which is why the exchange gives us a much lower margin requirement when trading spreads. The actual profit of spread trading comes from the price differences between the two contracts, which accumulates in various ways, such as the cost to carry a further out contract month commodity, as well as a number of other factors that drive the two prices apart. (Actual spread trading strategies are beyond the scope of this introductory video, but we will be providing additional educational resources regarding spread trading on our website.)

Now let’s talk quickly about how to actually place orders on, or to trade a spread.

It’s very simple, once you’ve opened your chosen spread chart, you’ll notice that it looks pretty much just like any other regular chart, with Open, High, Low, Close Bars, or you can have them be candlesticks, or any other style of your choice.

Whatever type of chart you choose, we’ve made it very easy to place spread orders, for the most part, it’s just like placing an order on any regular commodity chart, with just a couple minor differences.

Let’s jump over to the spreads tab, this is where we place our trades.

You’ll notice that it looks almost identical to the regular trades tab, with one significant difference. Since we’re actually placing two orders simultaneously, we have an additional set of controls that helps us identify and determine which contract we are placing our buy order for, and which one we’re placing our sell order for.

You’ll notice on this chart, I have my favorute indicator turned on, that being the Bulls ‘n Bears, which works just as beautifully on spread charts as it does on regular contract charts. We can also turn on my other favorute indicator, the Advantage Lines, which also work just as well on spread charts.

To place an order, simply click the order style you prefer, for example, if we just wanted to jump into the market long, we would use a standard buy Market order, which would put on a long spread position, or, we could put on a short position spread by clicking the sell Market order. Notice that Track ‘n Trade automatically switches which leg gets bought and sold.

Buy and sell stop orders, as well as limit orders, work exactly the same way. We drag ‘n drop a stop order above the market to go long the spread when our trigger price is hit, or we drag ‘n drop the order below the market to short the spread when our trigger price is hit.

Now just quickly, before we end this video, I want to show you the Q-OCO order’s. Again, the Q, which simply stands for ‘quick,’ and OCO, which stands for ‘one-cancels-other,’ are user definable order tools that combine buy or sell orders with opposing limit and stop orders, which can all be placed with one single click of the mouse, and works on spread charts just as easily as they do on regular commodity contract charts.

Let’s, for example, drag ‘n drop our stop order onto the screen here and as you can see Track ‘n Trade not only places our entry order, but automatically places our limit and our stop order at the same time, at our pre-specified price levels. Once the orders have been dropped onto the screen, you can fine tune, or adjust them just by clicking and dragging them to any new price level you like.

You’ll notice down in the accounting window, that you don’t see a single order representing your spread, and that’s because a spread is actually two orders, one long, and one short, so in the Track ‘n Trade accounting window, you see both orders represented.

This is just a quick overview of some of the great spreads trading features within Track ‘n Trade.

We would like to invite you to check out Track ‘n Trade’s spread trading features, and let us know what you think…

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