Spread Trading Market Relationships
The Dynamic Wealth Report
May 24, 2011
by Corey Williams, Editor
If you’re only investing in stocks, you’re making a huge mistake.
Right now, some of the best money making opportunities are flying under
the radar. But in order to take advantage of them, you have to think
outside the box.
Now more than ever, the macro picture is driving asset price movements.
Stocks, bonds, currencies, and commodities are all related. And
exploiting these relationships is a great way to make money.
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Sophisticated investors and hedge funds consistently profit from these
market relationships. The strategy is called spread trading. And now
it’s easier than ever for you to get in on the action. I’ll tell how in
a minute…
First, let’s take a closer look at spread trading.
A spread trade is simply profiting from the widening or narrowing of the
spread between two different assets. This is different than profiting
from the movement in the prices independently.
In other words, spread trading is capturing the price difference between
two assets.
For instance, right now everyone is talking about the relationship
between the US Dollar and the S&P 500. Over the last year, the US Dollar
trended lower while the S&P 500 trended higher.
Traders who identified this relationship were able to make money off the
widening spread between these two assets.
And there are plenty of other, less talked about, relationships too.
These relationships are always changing. And this price volatility
provides you with numerous trading opportunities.
Now, here’s the best part…
Spread trades tend to trend more dramatically and consistently than
other trades.
For these and many other reasons, professionals are quietly using spread
trades to generate profits in any market environment.
Typically, spread trades are executed with derivatives. Traders use
tools like futures and options to take a bullish and a bearish position
on different assets at the same time.
But here’s the problem…
Most investors don’t understand options or futures… They don’t want to
understand them… And they don’t want to mess them… As a result, spread
trading flies under the radar and doesn’t get much attention.
Now, there’s an easier way spread trade.
You don’t have to understand futures or options or even have an advanced
math degree to make these trades. Now you can spread trade with a single
Exchange Traded Fund (ETF) from FactorShares.
FactorShares make it cheap and easy to trade a long/short
index strategy.
For instance, FactorShares 2X: S&P 500 Bull/USD Bear (FSU) profits when
stocks in the S&P 500 are going up and the US Dollar is falling (sound
familiar?). And FSU even uses leverage to double the daily return.
FactorShares offers 2X leveraged spread trading on four other pairs as
well.
FSA pairs T Bond Bull with S&P 500 Bears… FOL pairs Oil Bulls with S&P
500 Bears… FSG pairs Gold Bulls with S&P 500 Bears… And FSE pairs S&P
500 Bulls with T Bond Bears…
Plus, I’m betting we’ll see more combinations if these spread trade ETFs
catch on…
I’ve got to admit these ETFs sound pretty amazing.
However, a word of caution… FactorShares ETFs only began trading in
February. So they have a limited history and trading volume is still
weak.
The good news is… so far the results are impressive!
For example, FSU was rocketing higher when the weak dollar/strong stock
market trend was in full swing. From March 16th to May 2nd, the S&P 500
shot up 10%. But over the same time, FSU surged 32%! Those are big gains
any way you slice them…
Clearly, spread trading can deliver big profits.
And now investors have an easy way to do it with FactorShares’ new
family of ETFs. Take a look at spread trading for a simple way to juice
your trading profits.
Last week was a crazy week in the IPO market. Social media and
networking site LinkedIn (LNKD) exploded onto the scene with a first day
double. This week Russia’s leading internet company, Yandex (YNDX), will
make its debut. Can YNDX top LNKD’s impressive performance?
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