Spreading The Word About ETF/ETN Spreads
Anybody who’s traded in the pits knows that futures are very versatile instruments. You can, of course, express blatant bullishness or bearishness through outright purchases or sales of contracts. But you can also take more nuanced approaches to the market by trading “spreads.”
In a spread trade, you buy one contract and simultaneously sell a different, but related, futures contract. A spread, for example, could pit corn against soybeans. Such a spread wagers on the relative effect of giving over acreage to one crop versus the other. It really doesn’t matter if corn or soybean prices go up or down. It’s the relationship between the two futures that matters to the spread trader.
Now, with the introduction of commodity-based exchange-traded funds (ETFs) and exchange-traded notes (ETNs), spreads can be traded outside of a futures account. There’s no shortage of spread options available for securities investors with margin accounts. (That margin account business may be enough to keep you away from ETF/ETN spreads, though. You need to be comfortable with short sales.)
Assuming you haven’t yet been scared off, our article, “Agribusiness Outshines Gold,” might have gotten you thinking about buying ags and selling metals. (You did think about doing that, didn’t you?)
[ Read at HardAssetInvestor >> ]
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- The ETF Book: All You Need to Know About Exchange-Traded Funds
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