Gold/Silver Spread for Dummies

M

mgrs

Hi everyone!

I've benefited from gold and silver prices rise through mining stocks trading but i'd like to slowly involve myself with future trading.

First of all, from what i've understood, spread trading is the safest starting point. Am i right ?

I've read somewhere that spreads in metals are expressed in the opposite way spread for other products are. Example of what i've read:
"Buy JAN/DEC" would mean long DEC and short JAN for a bear spread in gold and would mean long JAN and short DEC for a bull spread in corn. Is this right ? (Is this also a standard or do brokers have different "codes"?)

Also if you have some resources (books, website) on futures and spread trading that you like, please feel welcome to share these :D

Many thx in advance.
 
If you're giving an order over the telephone, it's better to maintain chronological order of the contracts. You'd say "Sell December-07 gold , buy January-08 gold, three dollars premium to the sell December, limit-or-better, GTC". The order specifies the commodity, contract months, order type, price differential and duration.
 
Quote from trader_rachel:

whomever told you that spread trading is the safest starting point obviously does not know how to trade
More...
Now that several people have jumped on this "pith", I'm curious what you think is the safest place to start?

1) Spreading is generally less risky than outright positions. A bull spread in Corn takes substantially less margin (and you can assume the exchanges know what they're doing when the assign margin a dollar value) than an outright position.

2) Spreading is far less fraught with beginning mistakes than options. Most people cannot easily grasp gamma and theta. Even though options may have a definable risk level, beginners do not understand they can (and, from a probability perspective, will almost certainly) lose money even if they're right on direction.

So, what's left?
 
Quote from trader_rachel:

Spread trading is thought to be less risky than outright positions - and in some cases it is - and in some cases it is much riskier.
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I'm curious to hear in which cases it is "much riskier"?

Worst case, a spread can be no more risky than two outright positions. I guess you could argue that any situation in which the exchange gives you less than a 50% break on spread margins is "riskier" than a single outright position.

This generally happens only in cases where the two things being spread are not all that related. Hogs/Cattle have similar drivers, but can spread quite far in cases like Mad Cow. Eurodollars/bonds can be affected by S&L bailouts.

These "once-in-a-decade" occurances don't seem to justify calling spreads riskier than outrights.

Your original argument was that anyone who suggests spreads are lower risk "doesn't know anything about trading." Being a person who knows something about trading, what do you think is a low -risk way to start?
 
history is littered with cases of traders and their firms

being crushed by spreads ...

if you want to experiment with a gold silver spread might I suggest you open up a brokerage acct that lets you trade equities and try GLD versus SLV

in small scale ... ( i.e. 200 shares GLD versus 100 SLV )

while you try to figure out a working strategy

good luck
 
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