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they are off or on the floors of the exchanges. These techniques are scalping (market making), position trading, and spreading. |
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The techniques of a futures market spreader are quite different from a scalper's or a position trader's. A spreader trades the differential between two or more contract months in a given commodity rather than the price of any given contract. In other words, the spreader will go long a quantity of one contract month and simultaneously go short an equal quantity of another month of the same commodity. Thus, his or her profit potential is based on whether the price of the commodity goes up or down, on the narrowing or widening of the differential between the contract months that make up the spread position. |
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Today, many spreaders perform this activity among three or four contract months at the same time. The objective is to pick up even the smallest increment of profit in the shift of the differential(s). The spreader is always alert to a new offer or bid in one given month that could spread profitably into another month. He is quick to react to any sudden "downdraft" or "updraft" in the market so that he can unwind one side of his spread for that small moment of market movement and hook it up again as soon as the price movement has stopped. The vast majority of spreaders apply this technique as a consequence of an accumulated open spread position. A spreader will usually have a theory, based on her analysis of market economics or dynamics, that a certain differential in a given commodity future will, over a period of time, narrow or widen. |
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Question 7: What is a scalper? |
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Neal: There are many types of scalpers. Some operate along classical lines by buying and selling between the smallest increment allowed by contract specifications. |
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In every case, the scalper attempts to flow with the immediate market movement, being among the first to sell as the market begins to fall and the first to buy when the market starts to rise. |
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Most often, the scalper liquidates a portion or his entire position as soon as the minor market movement has ended or as |
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