Spread Trade

A spread trade is a trading strategy that involves simultaneously buying one security and selling another related security, aiming to profit from the difference (spread) between the two. Spread trades are commonly used in options, futures, and bond markets, where traders take advantage of price discrepancies or hedge against market movements. The goal is to profit from changes in the relative prices of the two assets, rather than their absolute prices.

Example

A trader might enter a spread trade by buying a long position in a U.S. Treasury bond and shorting a comparable corporate bond, betting that the spread between their yields will widen.