What does Commodity Product Spread mean?
A transaction involving the simultaneous purchase of a raw material and the sale of the finished products, or vice-versa. For example, a spread between price of crude oil as well as the price of refined oil products can be traded on exchanges.
Commodity Product Spread is a popular trade on the futures markets.
Futures Knowledge Explains Commodity Product Spread
Commodity Product Spread is used for hedging. It is used by firms that make finished products from a commodity traded. A firm can buy a raw commodity futures at the same time the firm sells a finished commodity futures. This locks the prices for both raw materials and finished products and acts as a hedge against price variations. The firm’s profit will not be effected even in a volatile market. For example, refineries buy futures for crude oil and sell futures in refined oil.