# Spread Trading

> Spread trading buys one contract and sells a related one to profit from changes in the difference between them. Learn the main types, margins and risks.

Source: https://learn.tradelabsai.com/strategies/spread-trading/  
Track: Strategies and Styles · Level: Advanced · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Spread Trading", https://learn.tradelabsai.com/strategies/spread-trading/

Spread trading means simultaneously buying one instrument and selling a related one, so that profit or loss depends on the difference between their prices, the spread, rather than on the overall direction of the market. Spreads are especially common in futures, where exchanges list them as single tradable products, but the idea applies across markets: pairs of stocks, bonds of different maturities, options at different strikes and currencies. This lesson gives the overview; detailed lessons cover each type.

## Why trade spreads?

- **Lower directional risk:** the two legs offset much of the market's movement.
- **Lower margin:** exchanges often charge far less margin for recognised spreads than for single positions. See [Futures Margin: Initial and Maintenance](https://learn.tradelabsai.com/futures/futures-margin/).
- **Express specific views:** for example "summer gasoline will be strong relative to winter" or "short term rates will rise faster than long term rates".
- **Exploit economic relationships** such as processing margins and storage costs.

## Main types of spreads

| Type | Legs | Example | Lesson |
|---|---|---|---|
| Calendar (intra market) | Same product, different months | Long December, short March corn | [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/) |
| Inter market | Related products | Long gold, short silver | [Futures Spreads Explained](https://learn.tradelabsai.com/futures/futures-spreads-explained/) |
| Processing | Raw input vs finished products | Crude oil vs gasoline and heating oil | [Crack Spreads](https://learn.tradelabsai.com/futures/crack-spreads/), [Crush Spreads](https://learn.tradelabsai.com/futures/crush-spreads/) |
| Yield curve | Different maturities | Long 2 year, short 10 year Treasury futures | [Yield Curve Trades: Steepeners, Flatteners and Butterflies](https://learn.tradelabsai.com/bonds-credit/yield-curve-trades/) |
| Options spreads | Different strikes or expiries | Bull call spread | [Vertical Spreads](https://learn.tradelabsai.com/options/vertical-spreads/) |
| Relative value equity | Two related stocks | Long one bank, short another | [Pairs Trading](https://learn.tradelabsai.com/strategies/pairs-trading/) |

**Example: A calendar spread in crude oil**
A trader believes near term crude supply will tighten. December crude is $78.00 and the following June is $76.50, a spread of $1.50. The trader buys December and sells June. A month later, December is $80.00 and June is $77.50, so the spread is $2.50. The long leg gains $2.00 and the short leg loses $1.00, a net gain of $1.00 per barrel, or $1,000 on one 1,000 barrel spread. If both had risen by the same amount, the trade would have been roughly flat. See [Backwardation](https://learn.tradelabsai.com/futures/backwardation/).

## Pricing a spread

Spreads are usually quoted as one leg minus the other. Buying the spread means buying the first leg and selling the second; selling the spread means the reverse. In ratio spreads, the legs are in different quantities, chosen so their values or risks balance, such as the 3:2:1 crack spread (three barrels of crude against two of gasoline and one of heating oil).

## What moves spreads

- **Supply and demand timing:** harvests, inventories and seasonal demand. See [Seasonality in Commodities](https://learn.tradelabsai.com/commodities/seasonality-in-commodities/).
- **Storage and financing costs:** which determine normal calendar spreads. See [Contango](https://learn.tradelabsai.com/futures/contango/).
- **Relative fundamentals** between related products or companies.
- **Interest rate expectations** for yield curve spreads.

## Risks

- **Spreads can move sharply** despite offsetting legs, especially near expiry or in supply shocks.
- **Leg risk:** if legs are entered separately, prices can move between fills. Exchange listed spreads avoid this.
- **Liquidity:** deferred months or less common combinations can be thin. See [Liquidity](https://learn.tradelabsai.com/markets/liquidity/).
- **Delivery and expiry:** the near leg may approach first notice day before the far leg. See [First Notice Day and Last Trading Day](https://learn.tradelabsai.com/futures/first-notice-day/).
- **Low margins can tempt oversizing.** Lower margin does not mean no risk.

## Common mistakes

- **Treating spreads as risk free.**
- **Ignoring seasonal norms** for the spread.
- **Trading illiquid combinations** with wide bid ask spreads.
- **Forgetting roll and expiry dates** for each leg.

## Frequently asked questions

### What is spread trading?

Buying one instrument and selling a related one at the same time to profit from changes in the price difference between them.

### Why is margin lower on futures spreads?

Because the two legs offset much of each other's risk, exchanges recognise the spread and charge lower combined margin.

### What is a calendar spread?

A spread between two contract months of the same product, such as buying December corn and selling March corn.

Next, see how traders try to lock in pricing differences in [Arbitrage Strategies](https://learn.tradelabsai.com/strategies/arbitrage-strategies/).

## Continue learning

- Next lesson: [Arbitrage Strategies](https://learn.tradelabsai.com/strategies/arbitrage-strategies/)
- Previous lesson: [Statistical Arbitrage](https://learn.tradelabsai.com/strategies/statistical-arbitrage/)
- Related: [Statistical Arbitrage](https://learn.tradelabsai.com/strategies/statistical-arbitrage/): Statistical arbitrage trades many small, mean reverting mispricings across a portfolio of securities. Learn how stat arb works, its models, costs and risks.
- Related: [Futures Spreads Explained](https://learn.tradelabsai.com/futures/futures-spreads-explained/): Futures spreads buy one contract and sell a related one. Learn calendar, inter market and inter commodity spreads, margin benefits, quoting and worked examples.
- Related: [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/): A futures calendar spread buys one contract month and sells another. Learn bull and bear spreads, what moves them, seasonality and a worked crude oil example.
- Related: [Crack Spreads](https://learn.tradelabsai.com/futures/crack-spreads/): The crack spread measures the margin between crude oil and refined products like gasoline and diesel. Learn the 3:2:1 spread, how to calculate it and who trades it.
- Related: [Pairs Trading](https://learn.tradelabsai.com/strategies/pairs-trading/): Pairs trading buys one asset and shorts a related one when their spread stretches, betting it will converge. Learn pair selection, hedge ratios, z scores and risks.
- Related: [Vertical Spreads](https://learn.tradelabsai.com/options/vertical-spreads/): A vertical spread buys and sells options of the same type and expiry at different strikes. Learn debit vs credit spreads, the four types and how to choose widths.