Using Futures Spreads to Trade and Roll Crypto Positions
Summary
This article explains a futures spread as a paired trade in two contracts on the same asset with different expiries, entered through one spread order book. The price difference between expiries can change over time, allowing traders to speculate on the spread. The article also describes using spreads to roll an existing position from one contract into another, including moving a futures hedge for an options position or extending a cash and carry trade.
To illustrate liquidity, it reports two snapshots of BTC and ETH spread books from August 2023. Most observed books had the minimum one tick bid ask gap, and resting quote sizes were generally above the stated threshold. These are brief snapshots, so they do not establish liquidity at other times or for all order sizes. The article argues that a single spread order can reduce slippage and fees compared with trading each leg separately, while avoiding leg risk and the need to manage orders in two books. These advantages depend on available spread liquidity and execution conditions.
Key ideas
- A futures spread pairs opposite positions in contracts with different expiry dates.
- A spread book allows traders to enter both legs in one order and speculate on the difference between expiries.
- Traders can use spreads to roll a position from one expiry to another, including futures hedges for options.
- The cited liquidity evidence comes from two BTC and ETH market snapshots, not a continuous study.
- Executing both legs together avoids leg risk and can simplify order management.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.