Spreads
Candlefocus EditorFinancial spreads are an important concept in the world of finance, and one that helps investors and traders understand the price movements of a particular asset. A spread is the difference between two prices, rates, or yields. One of the most common types is the bid-ask spread, in which the ask price (the price for which a seller is willing to sell the asset) is greater than the bid price (the price at which a buyer is willing to buy an asset).
When it comes to trading, a spread usually refers to the difference in position of a short position (selling) in one futures contract or currency and a long position (buying) in another futures contract or currency. This type of spread is often used to limit the risk of a trading position and can be combined with other hedging strategies.
The spread between a security’s spot and futures prices is another type of spread commonly used in financial markets. This spread may refer to the difference in price between a stock's current spot price (the live market price) and the futures price (the price of the same stock for a future delivery date). This type of spread is often used by investors to lock in future profits or to hedge against price changes in the existing spot market.
Financial spreads can be used in markets such as Forex, stocks, and futures to gain an edge in the market. Additionally, spreads can be used to limit the risks of trading, as well as to capture potential profits in the market. Understanding the different types of financial spreads, and how they work, is an important part of any investor or trader's strategy.