An investment strategy involving the simultaneous purchase and sale of related securities to profit from changes in the price difference (spread) between them, while minimizing directional market risk.
From Old English 'spreadan' (to extend) and Middle English 'trade.' The concept developed as traders realized they could profit from relative price movements between related securities without taking full market exposure.
Spread trading is like betting on which horse will win by a bigger margin rather than which horse will win - you're playing the relationship between securities, not their absolute performance! Calendar spreads, credit spreads, and pairs trading all exploit the fact that related securities don't always move in perfect harmony.
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