Spread Trading

Spread trading is used in technical analysis and it is when you take a long and a short position at the same time, in order to make a profit. This profit comes from the “spread” which is the difference between the “bid” and the “ask” price. The “bid” is the offer that is made by an investor, a trader, or a dealer to buy a security. It specifies not only the price in which the buyer is willing to buy the security, but it also specifies the quantity of the security to be purchased. The “ask” price is the price that the seller is willing to accept for a security and it also specifies the price as well as the amount of the security willing to be sold.

In futures day trading, one can also practice spread trading. Futures spread trading occurs as the trader longs (buys) and shorts (sells) futures contracts at the same time, for two associated securities, or commodities. (see shorting) Futures spread trading provides traders with the potential to profit off of contract spreads rather than take positions on the market’s direction. The underlying principle for this type of trading is that as futures contracts reach maturity, the prices of the different contracts will change differently over time, therefore allowing traders to profit.

As you learn spread trading you will find that there are five different types of orders that a trader can place. These are explained below.

Market order – a market order is an order to buy or sell a security instantly at the best available current price.

Limit order – a limit order in placed to sell or to buy a certain amount of a security at a given price or better. These orders also let the investor limit the duration of time that an order can be open before it is cancelled.

Day order – a day order is only good for one trading day and if it is not filled on that day, then it is cancelled. This order is placed either with a market maker or a specialist.

Fill or Kill order – also referred to as FOK, this order must be filled ASAP and in full, or not at all.

Stop order – a stop order, also referred to as a “stop” or a “stop-loss order” is an order that applies when a security passes a certain point. This order increases the probability that the trader will enter or exit the market at a specified price in order to either lock in profit or limit his or her losses.

Please also read about Japanese Candlesticks which is a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis . It is the fastest way for new investors to quickly and accurately read stock market charts when trading stock. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns. Combine these with your favorite technical indicators and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds.