Traders who engage in spread trades buy one security and sell another with identical features as a unit at the same time. Relative value trading is more common in options, futures contracts, and currencies, with each transaction referred to as a leg. It enables traders to profit from market volatility.

Trading spreads involve simultaneously buying and selling related financial instruments to capitalize on the price difference between them. One common type of spread trading is options spreads, where traders utilize different options contracts to create positions that profit from changes in volatility, time decay, or directional movements in the underlying asset. For example, a trader might execute a bull call spread by buying a lower-strike call option and simultaneously selling a higher-strike call option on the same underlying asset.

Another popular form of spread trading is futures spreads, where traders go long on one futures contract while simultaneously shorting another, typically with different expiration dates. This strategy helps mitigate risk by reducing exposure to overall market movements.

Successfully trading spreads requires a deep understanding of the underlying assets, risk management, and market conditions. Traders often analyze various factors, including implied volatility, time decay, and price correlations, to make informed decisions and optimize their spread positions.