Every futures spread trade clearly has the features of a hedging transaction that alters the exposure for a trader from that of outright price fluctuations to the price differentials between the legs of the spread trade.

In other words, the profitability of a futures spread strategy will depend of the price direction or, for that matter, the differences in the pace of price movement for the individual legs of the strategy.

Spread trading using futures is relatively straightforward and involves simultaneously buying a particular contract and selling a contract against it.Spreads may be broadly classified as intra-market spreads and inter-market spreads.Intra-market spreads are typically calendar spreads set up by buying one contract month and selling another with a different maturity date in the same futures market.Over the past decade, the ratio oscillated between 45 and 60, and more recently has been in the 63-65 range.Although both metals are considered precious and tend to trend together, gold is viewed as a global currency and often used as an inflation hedge and safe-haven asset in times of market uncertainty, whereas silver has more of an industrial bent to it with nearly 50 to 60 per cent of the metal consumed for industrial end use as compared to a mere 10 per cent of gold.As observed from the correlation values in the table, precious metals have historically been closely linked and have shown a tendency to move together as compared to other assets such as crude oil or equity indexes.

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