Trading Commodities and Financial Futures: A Step-by-Step Guide to Mastering the Markets, Third Edition

Spread trading—a valuable forecasting tool

I've found that by analyzing the spread action in many of the actively traded physical commodities, a trader can get valuable clues as to how bullish or bearish a market is. Spreads also can be used to predict the market path of least resistance. Typically, commodity futures markets are “carrying charge” or “normal.” (In London, they would say the market is in contango, and we are not talking about dance.) This is when the distant months sell at a higher price (or premium) to the closer months. Here's a typical example of what a “normal” copper market might look like:

March copper	99.05
May copper	100.15
July copper	101.95
September copper	103.25
December copper	105.10

Because it costs money to store copper from ...