As expiry of a long contract and delivery of the underlying physical commodity approaches, spread trades are used by Index Speculators in commodity futures markets to "roll" their positions out to a later delivery month. Thus, "extinguishing" their open interest in the expiry month while creating new open interest in the later delivery month. Because they always defer delivery, Index Speculators never take possession of physical inventories and do not operate in the commodity markets with concern for supply and demand- only price movement.
Common examples are:
The margin requirement for a futures spread trade is usually less than the sum of the margin requirements for the two individual futures contracts. Sometimes the margin requirement is even less than the requirement for one of the contracts.
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