Intracommodity Spread

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Intracommodity spread

Used in the context of futures trading to refer to a trader buying and selling contracts in the same commodity on the same exchange, but for different months. For example, buying Chicago August cattle futures and selling Chicago December cattle futures.

In futures contracts, the spread in which a trader buys a commodity future expiring in one month for a certain price, then sells a future for the same underlying commodity expiring a different month at the same time on the same exchange. Profit is determined by the price difference between the two contracts. The advantage of an intracommodity spread is that the trader does not need to rely on market movements in order to make a profit, but only needs his/her short position to have a higher price than the long position.

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