Futures spread trading: Navigating price discrepancies for profit
If you’ve traded perpetual futures (perps) before, you’ll know that they often come with plenty of highs and lows. With futures spread trading, you can mitigate some of these risks by focusing on the relative price movements between two contracts, rather than the absolute price changes. This sophisticated strategy allows you to profit from the spread, while minimizing exposure to overall market volatility — which is particularly beneficial in highly volatile markets like crypto.
In this article, we’ll learn about futures spread trading, how it works in practice and why traders might choose this approach over outright futures trading. We’ll also delve into the key advantages and potential drawbacks to consider before you get started. By the end of this article, you’ll have a better understanding of whether futures spread trading is a suitable strategy for your trading goals and risk tolerance.
Key Takeaways:
Futures spread trading is a sophisticated strategy in which traders simultaneously open two futures contracts in opposing directions in order to capitalize on the price difference between them.
In the crypto market, spread trading often involves both futures with expiration dates and perpetual futures. The latter (perps) are contracts that don’t have expiration dates, thus allowing traders to maintain positions indefinitely and profit from changes in the spread while minimizing exposure to overall market volatility.