Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 1: Principles of financial trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 2: Principles of Financial Planning and Cash Flow in Financial Trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 3: Understanding financial trading techniques

TYPES OF SPREADS – CALENDAR SPREADS

alendar spreads are executed with legs differing only in delivery date. They price the market expectation of supply and demand at one point in time relative to another point.

A common use of the calendar spread is to “roll over” an expiring position into the future. When a futures contract expires, its seller is nominally obligated to physically deliver some quantity of the underlying commodity to the purchaser. In practice, this is almost never done; it is far more convenient for both buyers and sellers to settle the trade financially rather than arrange for physical delivery. This is most commonly done by entering into an offsetting position in the market. For example, someone who has sold a futures contract can effectively cancel the position out by purchasing an identical futures contract, and vice versa.

The contract expiry date is fixed at purchase. If a trader wishes to hold a position in the commodity beyond the expiration date, the contract can be “rolled over” via a spread trade, neutralizing the soon to expire position while simultaneously opening a new position that expires later.

Scroll to Top