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tHe COnCepts And MeCHAniCs OF spreAd trAding 
 ■ Because it is especially easy to procrastinate in liquidating a losing spread position, the spread 
trader needs to be particularly vigilant in adhering to risk management principals. it is advisable 
that the spread trader determine a mental stop point (usually on the basis of closing values) prior 
to entering a spread and rigidly stick to liquidating the spread position if this mental stop point is 
reached.
 ■ Avoid excessively low-risk spreads because transaction costs (slippage as well as commission) will 
represent a significant percentage of the profit potential, reducing the odds of a net winning out-
come. 
in short, the odds are stacked against the very-low-risk spread trader.
 ■ As a corollary to the prior item, a trader should choose the most widely spaced intramarket 
spread consistent with the desired risk level. 
generally speaking, the wider the time duration in 
an intramarket spread, the greater the volatility of the spread. this observation is as true for mar-
kets conforming to the general rule as for markets unrelated or inversely related to the general 
rule. 
traders implementing a greater-than-one-unit intramarket spread position should be sure to 
choose the widest liquid spread consistent with the trading strategy. For example, it usually would 
make little sense to implement a two-unit March/May corn spread, since a one-unit March/July 
corn spread would offer a very similar potential/risk trade at half the transaction cost.