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Spread Trading Basics

Profit from the spread price between two contracts.

Spread trading involves buying one crude oil futures contract in one month and selling another crude oil futures contract in a farther out month. The goal is to profit from the expected change between the purchase and selling price of both contracts. For example, a trader could sell the March crude oil futures contact trading at $94.50 and buy the June contract for $95.80, for a difference of $1.30. If the trade widens more than the $1.30, the trader has a profit. The trader would buy a March contract and sell a June contract to close out the trade. But if the spread contracts, the trader will realize a loss.

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