Spread trade

A simultaneous purchase and sale of one instrument and the corresponding purchase or sale of another instrument whereby the tradable price is formed based on the differential between the spot prices of the underlying instruments. Examples include buying one futures contract and selling another futures contract of the same underlying asset but different delivery month; buying a given delivery month of one futures contract and selling the same delivery month of a different, but related, futures contract. A calendar spread trade can be the basis for cash-and-carry arbitrage, which establishes a relationship between two forward prices.