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Spread Trading

The practice of buying one option contract and selling another for the same underlying investment at the same time.

The difference between the profit from one transaction and the loss on the other is the spread. The spread can either work for or against the trader. If the spread works in his or her favour, a profit is made. If it works against the individual, a loss is suffered.

Spread trading is used by futures and options traders to reduce the risk of losing large sums from a sudden movement in the market.

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