Absolute Futures Spread refers to the price difference between two futures contracts that are based on the same underlying asset but have different expiration dates. This concept is important in futures trading as it helps traders understand the market’s expectations for future price movements over time.
Traders use Absolute Futures Spread to gauge market sentiment and to strategize their trades. For example, if the spread widens, it may indicate increasing volatility or divergent expectations about the asset’s future price. Conversely, a narrowing spread might suggest stabilization or convergence in market predictions.
Investors can exploit variations in the Absolute Futures Spread for arbitrage opportunities or hedging strategies. By analyzing these spreads, traders can make informed decisions on when to enter or exit positions in the futures market, ultimately aiming to maximize returns while managing risk.
