Seasonal spread traders are spread traders that take advantage of
seasonal
A season is a division of the year based on changes in weather, ecology, and the number of daylight hours in a given region. On Earth, seasons are the result of the axial parallelism of Earth's tilted orbit around the Sun. In temperate and pol ...
patterns by holding
long
Long may refer to:
Measurement
* Long, characteristic of something of great duration
* Long, characteristic of something of great length
* Longitude (abbreviation: long.), a geographic coordinate
* Longa (music), note value in early music men ...
and
short positions in
futures contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asse ...
s simultaneously in the same or a related
commodity markets
A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investin ...
, 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
Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall stat ...
,
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
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environm ...
using spreads.
In order to find the information on seasonal spread, many traders use algorithms retrieving past commodity volatility and performance.
Important sources for seasonal traders are institutional reports, such as the
COT report, which shows the positions held on commodities by the major market players.
Lower good faith
margin
Margin may refer to:
Physical or graphical edges
*Margin (typography), the white space that surrounds the content of a page
*Continental margin, the zone of the ocean floor that separates the thin oceanic crust from thick continental crust
* Leaf ...
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
In finance, speculation is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline in value.)
Many ...
*
Jesse Livermore
Jesse Lauriston Livermore (July 26, 1877 – November 28, 1940) was an American stock trader. He is considered a pioneer of day trading and was the basis for the main character of '' Reminiscences of a Stock Operator'', a best-selling book by ...
References
External links
* ''
Reminiscences of a Stock Operator
''Reminiscences of a Stock Operator'' is a 1923 roman à clef by American author Edwin Lefèvre. It is told in the first person by a character inspired by the life of stock trader Jesse Livermore up to that point.
The book remains in print (). ...
'' by
Edwin Lefèvre (best-selling biography of Jesse Livermore) multiple reissues, last in 2004 ({{ISBN, 0-471-67876-7)
Futures Spread Tradingby Steven A. Mitchell
Seasonality at futures marketby SeasonAlgo
Detailed description for futures spread tradingby SeasonAlgo
Commodity markets
Derivatives (finance)