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FRM Part I · FRM Exam Part I · Exchanges and OTC Markets

On a futures exchange, a trader who sells short-dated contracts and buys the same number of contracts for a later maturity month, hoping to profit from a change in the price difference between the two months, is best described as engaging in which activity?

This is spread trading, specifically a calendar spread. The trader holds opposite positions in two maturities of the same underlying and profits from changes in the price difference between them, rather than from the outright direction of futures prices or from a spot exposure.

  1. ASpread tradingCorrect
  2. BArbitrage across venues
  3. CPure hedging of a spot position
  4. DScalping on the order book

Explanation

Simultaneously taking opposite positions in two maturities of the same underlying is a calendar spread. The trader profits from the change in the price difference, not from the outright price direction. It is not hedging a spot exposure, and it does not exploit a price gap between venues.

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