Spread Trade ....

 

The Spread trade is common used for NON-FX products i.e product A vs product B. However not many people are aware than trading Fx is a form of Spread Trade. The reason being it is Currency A vs. Currency B. 

While people are born to react and respond or behave to certain WORDS which results in either mental block or paralyze. When one ignores each and every word used to describe or name something but get to the bottom of the structure than one can understand the purpose of the product.

When a person trades a certain FX pair e.g EURUSD, it is actually a spread trade between EUR vs USD. When EUR strengthen against USD, the EURUSD chart goes up. When EUR weaken against USD, the EURUSD chart goes down.

Under what circumstances the EURUSD chart goes up? For this to happen there are a couple of scenario and we don’t need rocket science to figure this out. 

• 1. EUR gains more than USD gains (Nett EUR +)
• 2. EUR gains and USD no change (Nett EUR +)        
• 3. EUR no change USD loss (Nett EUR +)
• 4. EUR gains and USD loss (Nett EUR+)

When does the EURUSD chart go down?

1.  EUR gains less than USD gains (Nett USD+)
2.  EUR no change and USD gains (Nett USD+)
3.  EUR loss and USD no change (Nett USD+)
4.  EUR loss and USD gain (Nett USD+)

When you replace EUR with CPO (Oct) and USD with CPO (Nov), you can see how the concept SPREAD works. In this case it is CPO Calendar spread.

“Spread” is just another name/terminology. What is most important is how the mechanic works.

When one trade FX, most likely one is not aware that he or she is actually executing Spread Trade

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AfrikaansAlbanianAmharicArabicArmenianAzerbaijaniBasqueBelarusianBengaliBosnianBulgarianCatalanCebuanoChichewaChinese (Simplified)Chinese (Traditional)CorsicanCroatianCzechDanishDutchEnglishEsperantoEstonianFilipinoFinnishFrenchFrisianGalicianGeorgianGermanGreekGujaratiHaitian CreoleHausaHawaiianHebrewHindiHmongHungarianIcelandicIgboIndonesianIrishItalianJapaneseJavaneseKannadaKazakhKhmerKoreanKurdishKyrgyzLaoLatinLatvianLithuanianLuxembourgishMacedonianMalagasyMalayMalayalamMalteseMaoriMarathiMongolianMyanmar (Burmese)NepaliNorwegianPashtoPersianPolishPortuguesePunjabiRomanianRussianSamoanScots GaelicSerbianSesothoShonaSindhiSinhalaSlovakSlovenianSomaliSpanishSundaneseSwahiliSwedishTajikTamilTeluguThaiTurkishUkrainianUrduUzbekVietnameseWelshXhosaYiddishYorubaZulu

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