Can you help me understand spread treading?

[Folio]

Hello, I am trying to learn how to trade in commodities and trade using the spread but I cannot even understand the basics.

So we need to observe the seasonality of a certain commodity. So let's take CORN as an example: I buy in April at a low price and I sell in June at a higher price, making a profit. That's clear.

But I am reading that in spread treading you don't invest in one thing but in a pair, like in the forex market.
So we take 2 things, for example corn and wheat, corn is in blue and wheat is the red line.
So in theory, I should enter the position when the spread is low (first arrow), so that I would buy wheat and sell corn, and then I would exit my position at the second arrow, when the spread is high, by selling wheat and buying corn.
Did I get it right so far?

But my question is: how can I sell corn (blue) if I don't even own it yet?

Another question is: if I enter the position by buying red and selling blue, how can I ever exit my position? Because in theory at the end of it I would have to sell red but buy blue, so I would still be in the position.

Another thing is that I have read that you can invest in the same commodity, for example you can analyze the spread of corn future of September (blue) and the corn future of december (purple).

But how is it possible to even have a spread if the lines are basically identical?

Thanks to whoever replies.

 

[Stanislav]

But my question is: how can I sell corn (blue) if I don't even own it yet?
I think you need to study the basics of trading futures. After that, you can come to trading calendar spread. Really this is the best way. Try to find in google/youtube "what is short position?" something like this.

But how is it possible to even have a spread if the lines are basically identical?
Lines are not identical, they have some range. Sometimes it is can be 1-3 ticks (movement of price). And basically this calendar spread has the same trend as his legs, but less volatile.

Good luck ; )

 

[Nobert]

Hey Folio,

- it's not worth it.

If you're serious about emerging your life into the world of finances & learning how to trade/invest, just leave the spread betting right there.

The game is already rigged in many ways & more than that, you're choosing something, where all of the odds are against you.
(people can't predict the direction of one instrument, and here you got basically - some sort of CFD(?), that leaves your profits in the hands, of a correlation between a two like that )

Before i found investing, i gave myself a very simple question :
,, Who are the most wealthy people in the world and what do they do?''

The answer was simple.

This is what, you should ask :
,, How many successful names do i know, who are doing - spread betting ?''
(lol, Buffet, spread betting on airlines(just kidding))

Just lurk around the forum, sooner or later, you will find something better.

 

[Folio]

Hey Folio,

- it's not worth it.

If you're serious about emerging your life into the world of finances & learning how to trade/invest, just leave the spread betting right there.

The game is already rigged in many ways & more than that, you're choosing something, where all of the odds are against you.

Before i found investing, i gave myself a very simple question :
,, Who are the most wealthy people in the world and what do they do?''

The answer was simple.

This is what, you should ask :
,, How many successful names do i know, who are doing - spread betting ?''

Just lurk around the forum, sooner or later, you will find something better.

Hi and thanks for the reply.

Why do you think so? I am interested in commodities because unlike stocks they are cyclical and so there is a good probability to get the fluctuations right whereas with stocks you never know what will happen.

The problems I am facing though is the craziness of their units of measurements with all these ticks and points and the graphs.

Please tell me more.

 

[Nobert]

commodities because unlike stocks they are cyclical and so there is a good probability to get the fluctuations

There are plenty cyclical equities as well.
(more than enough)

whereas with stocks you never know what will happen.

You never know what will happen, until - you learn the fundamental analysis.
(TA is a must as well)
Then you go for the two of, inevitable scenarios :

#1 - either price goes up
#2 - or the garbage company meets it's doom at that major support area of 0.00

The problems I am facing though is the craziness of their units of measurements with all these ticks and points and the graphs.

If you're talking about spread betting, - then that's what i am telling you - it's not worth it. All of the time & resources, into a garbage can.

If you're talking about equities, well, get over it, easy come - easy go.
Hard victories produces a sense of meaning/purpose in life.

 

[MichalTr]

Why ? Why ppl come and say "ok, I know nothing, please tell me everything". You want to trade but you don't want to do all the hard work ? So sorry, you won't be trading...

I might be rude, but this story goes over and over again. Do your job... read, watch, test ideas. You don't know basics but want info about much more complicated stuff.

To @Nobert . Don't mix spread betting with futures spreads trading (or not only futures, just spreads trading). Two completely different things. And in fact the biggest traders on CME were always spreading guys... specifically yield spreads (CBOT, ZT/ZF/ZN/ZB). Combining interest rate futures liquidity with spread margins they got very nice possibilities. Also grain spreads and energy spreads. In fact trading outrights in the way many ppl do it is gambling. They try to predict move in one direction or another. With spreads there is a bit another game - you have some relative values, you have something to refer to. There is also seasonality (energy, grains) or more algo and fundamental play (interest rates). In fact OP is right that there is more "robust" things to anchor here. And if you are so big fan of "names" (although it doesn't matter), whole Citadel model of working is based on Thorps model, which is based on spreading instruments...

 

[Folio]

There are plenty cyclical equities as well.
(more than enough)

You gotta pardon me but English is my second language so I am not sure I got what you said right. When you say equity you mean stocks or what else?

You never know what will happen, until - you learn the fundamental analysis.
(TA is a must as well)
Then you go for the two of, inevitable scenarios :

#1 - either price goes up
#2 - or the garbage company meets it's doom at that major support area of 0.00

I am learning a bit of technical analysis, I have learned about the head two shoulders, the triangle, the rectangle, the double low etc. (the names might be a bit off because I learned them in my language).

The problem though is that I bought a course and I am following it but if I don't get these fundamentals the entire puzzle doesn't make sense.
I have been trying to figure out my doubts online, on the CME webpage and on youtube and I didn't find a solution.
That's why I'd like to talk to someone who actually does invest in commodities to clarify things for me.

If you're talking about spread betting, - then that's what i am telling you - it's not worth it. All of the time & resources, into a garbage can.

If you're talking about equities, well, get over it, easy come - easy go.
Hard victories produces a sense of meaning/purpose in life.

So you are saying that commodities are a bad field of investments whereas stocks (if that's what you mean by "equities" are easier?

If so could you expand on why? Because I have heard the opposite.

 

[Folio]

Why ? Why ppl come and say "ok, I know nothing, please tell me everything". You want to trade but you don't want to do all the hard work ? So sorry, you won't be trading...

I might be rude, but this story goes over and over again. Do your job... read, watch, test ideas. You don't know basics but want info about much more complicated stuff.

To @Nobert . Don't mix spread betting with futures spreads trading (or not only futures, just spreads trading). Two completely different things. And in fact the biggest traders on CME were always spreading guys... specifically yield spreads (CBOT, ZT/ZF/ZN/ZB). Combining interest rate futures liquidity with spread margins they got very nice possibilities. Also grain spreads and energy spreads. In fact trading outrights in the way many ppl do it is gambling. They try to predict move in one direction or another. With spreads there is a bit another game - you have some relative values, you have something to refer to. There is also seasonality (energy, grains) or more algo and fundamental play (interest rates). In fact OP is right that there is more "robust" things to anchor here. And if you are so big fan of "names" (although it doesn't matter), whole Citadel model of working is based on Thorps model, which is based on spreading instruments...

Hey, thanks for your reply.

I understand your point of view, but I don't want you to just gift me all your knowledge.

The problem is that I bought a course (and I paid quite a lot for it) and it really goes into detail about how to use this strategy in the commodity field. The problem is that I don't get some things and I cannot ask the teacher so I need someone who's knowledgeable in this to clarify these doubts, otherwise all the course that I studied is in vain.


I have studied about the commodities, their symbols, the exchange of Chicago, the site of barchart, moore research.

The problem is that I didn't understand these key concepts (I have some problems with the understanding of ticks too) and without these key concepts it's all a mess.

 

[Nobert]

To @Nobert . Don't mix spread betting with futures spreads trading (or not only futures, just spreads trading). Two completely different things. And in fact the biggest traders on CME were always spreading guys... specifically yield spreads (CBOT, ZT/ZF/ZN/ZB). Combining interest rate futures liquidity with spread margins they got very nice possibilities. Also grain spreads and energy spreads. In fact trading outrights in the way many ppl do it is gambling. They try to predict move in one direction or another. With spreads there is a bit another game - you have some relative values, you have something to refer to. There is also seasonality (energy, grains) or more algo and fundamental play (interest rates). In fact OP is right that there is more "robust" things to anchor here. And if you are so big fan of "names" (although it doesn't matter), whole Citadel model of working is based on Thorps model, which is based on spreading instruments...

Thank you for reply Michal,

to much to argue, if i go into deep on what you wrote, simply out of energy today & see no value in doing that, whatsoever.
Thus, 2 different world views, respect your knowledge tho.

You gotta pardon me but English is my second language so I am not sure I got what you said right. When you say equity you mean stocks or what else?

Everything is alright with your English. Yes, i mean stocks.

I am learning a bit of technical analysis, I have learned about the head two shoulders, the triangle, the rectangle, the double low etc. (the names might be a bit off because I learned them in my language).

The problem though is that I bought a course and I am following it but if I don't get these fundamentals the entire puzzle doesn't make sense.
I have been trying to figure out my doubts online, on the CME webpage and on youtube and I didn't find a solution.
That's why I'd like to talk to someone who actually does invest in commodities to clarify things for me.

For all of that a single question :
- how long so far ?

So you are saying that commodities are a bad field of investments

No. I didn't say that. What i said (am trying to say) that you should choose something else, instead of spread betting.

stocks (if that's what you mean by "equities" are easier?

It's easy. When, you know both TA and FA. And have a right mindset/work ethic ready.
(those are 4 different fields in itself...)

Because I have heard the opposite.

You will hear all kinds of opinions, stay open minded, dwell upon all of them & come with your own conclusions, to find that -
which works best for you.

Not for me. Not for Michal.

But for you.

as i mentioned prior :

Just lurk around the forum, sooner or later, you will find something better.

p.s you double posted, same text.

 

[Louffixx]

Hi Folio,
i am also a noob at trading, but when you say that comoditites must be traded by pair, like forex...... it sems not so right to me.......

i think people will answer you and you posted a well written thread so you will have more info.