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A Complete Guide to the Futures mArket
can be achieved by using a contract ratio that is inversely proportional to the contract value (CV) ratio. 
This can be expressed as follows (see footnote 2 for symbol definitions):
N
N
CV
CV
UP
UP
t
t
2
1
1
2
11 0
22 0
== =
=
,
,
or, NN CV
CV21
1
2
= 





For example, if New Y ork coffee is trading at $1.41/lb and London coffee at $.80/lb, the equal-dollar-
value spread would indicate a contract ratio of 1 New Y ork coffee/3 London coffee:
NN CV
CV N UP
UP
t
t
21
1
2
1
11 0
22 0
= 




 =






=
=
,
,
If  New York coffee contractN1 1= ,
N2 =× ×=37 5001 41/22 0430 80 3 London contracts,$ ., $.
Thus, in an equal-dollar-value spread position, 3 New Y ork coffee contracts would be balanced by 9 
(not 5) London contracts.
It may help clarify matters to compare the just-defined equal-dollar-value approach to the 
equal-unit approach for the case of the New Y ork coffee/London coffee spread. Although the equal-
unit spread is indifferent to equal absolute price changes, it will be affected by equal-percentage 
price changes (unless, of course, the price levels in both markets are equal, in which case the two 
approaches are equivalent). For example, given initiation price levels of New Y ork coffee = $1.41/lb 
and London coffee = $.80/lb, consider the effect of a 25 percent price decline on a long 3 New Y ork/
short 5 London coffee (equal unit) spread:
Profit/loss in long New York coffee positio n3 37 5000=× ×−,( $. .) $,3525 39 656=−
Profit/loss in short London coffee position 52 20 43 0=× ×−,( $. 220 +2 20 43)$ ,=
Profit/loss in sprea d1 7 613=− $,
The equal-dollar-value spread, however, would be approximately unchanged:
Profit/loss in long New York coffee positio n3 37 5000=× ×−,( $. .) $,3525 39 656=−
Profit/loss in short London coffee position 92 20 43 0=× ×+,( $. 220 +3 96 77)$ ,=
       Profit/loss in sprea d+ 21= $
Returning to our original example, if the trader anticipating price weakness in London coffee rela-
tive to New Y ork coffee had used the equal-dollar-value approach (assuming a 3-contract position for 
New Y ork coffee), the results would have been as follows:
Profit/loss in long New York coffee positio n3 37 5000=× ×−,( $. .) $,10 11 250=−
Profit/loss in short London coffee position 92 20 43 +0=× ×,( $. 115 29 758) $,=+
Profit/loss in sprea d+ 18 508= $,