Trading Commodities and Financial Futures: A Step-by-Step Guide to Mastering the Markets, Third Edition

Normal or inverted?

For this discussion, note that spreads can trade with the front month higher than the back, and vice versa. You can use this fact as a valuable forecasting tool, a discussion best saved for Chapter 8, “The Advanced Futures Trading Course (Or How to Analyze the Markets Technically).” I'll end this particular discussion of spreads with a caveat. Because the margins are generally much lower on spreads, there is a natural tendency to overtrade, or put on too many. Just because spreads are limited risk does not mean there isn't risk; on occasion, spreads can actually entail greater risk. A number of years ago, a friend of mine had the long July/short December cotton spread. One afternoon after the market's close, a change in some ...