453
. . . many more people see than weigh.
—Philip Dormar Stanhope, Earl of Chesterfield
B
y definition, the intention of the spread trader is to implement a position that will reflect changes 
in the price difference between contracts rather than changes in outright price levels. T o achieve 
such a trade, the two legs of a spread must be equally weighted. As an obvious example, long 2 
December corn/short 1 March corn is a spread in name only. Such a position would be far more 
dependent on fluctuations in the price level of corn than on changes in the price difference between 
December and March.
The meaning of equally weighted, however, is by no means obvious. Many traders simply assume 
that a balanced spread position implies an equal number of contracts long and short. Such an assump-
tion is usually valid for most intramarket spreads (although an exception will be discussed later in this 
chapter). However, for many intermarket and intercommodity
1 spreads, the automatic presumption 
of an equal number of contracts long and short can lead to severe distortions.
Consider the example of a trader who anticipates that demand for lower quality Robusta coffee 
beans (London contract) will decline relative to higher quality Arabica beans (New Y ork contract) and 
Intercommodity 
Spreads: Determining 
Contract Ratios
Chapter 31
1 The distinction between intermarket and intercommodity spreads was defined in Chapter 30. An intermarket 
spread involves buying and selling the same commodity at two different exchanges (e.g., New Y ork vs. London 
cocoa); the intercommodity spread involves buying and selling two different but related markets (e.g., wheat vs. 
corn, cattle vs. hogs).