Lower Margin Requirements

One of the key advantages of trading futures spreads is significantly reduced margin requirements compared to outright futures positions. Many traders find it difficult to hold positions overnight due to the need for full initial margin. While day trading typically requires only 25% of that amount, positional trading still demands a large capital outlay. For instance, trading one Soybean futures contract currently requires an initial margin of around $1,950. In contrast, trading a calendar spread like the 05/2020–11/2020 Soybean Futures Spread required only $325 at that time. A 10-cent favorable move in the futures contract could yield roughly a 25% return on margin, whereas the same move in a spread could produce returns upwards of 150%. This kind of leverage with controlled risk is one reason many professionals prefer spread trading.

Trade with Minimal Reliance on Stops

Trading outright futures without a protective stop is highly risky — market volatility, slippage, or limit moves can result in devastating losses. Even stop orders can fail to execute properly under extreme market conditions or be invalidated by large price gaps. This creates stress and uncertainty for traders. Futures spreads, however, offer a much more stable alternative. Since you hold both a long and a short position in the same commodity (with different expiration dates), even large market swings often result in minimal net price change in the spread. Losses in one leg are generally offset by gains in the other, greatly reducing the need for hard stops and providing a smoother trading experience.

Defined Risk Using Carrying Charges

Another powerful risk control feature in spread trading is the concept of the “carrying charge” — the cost of storing and carrying a commodity from one delivery date to another. Many markets, particularly those in contango (where later-dated contracts trade at a premium), provide built-in risk boundaries based on this carrying cost. In normal market conditions, this can act as your maximum loss point. For example, in markets like corn, wheat, soybeans, cocoa, sugar, orange juice, copper, and pork, you can estimate your worst-case risk based on this storage cost — making your exposure far more predictable than with outright positions.

Low Trading Costs and Longer Holding Periods

Futures spread trading is not only efficient but also cost-effective. Since most spread strategies involve longer-term holds, you’ll naturally place fewer trades. This translates to reduced commissions, fewer slippage events, and overall lower transaction costs compared to active intraday trading strategies. The ability to focus on high-probability seasonal trades rather than constant screen-watching makes this approach both economically and mentally sustainable for many traders.

Real-World Example of High ROI

Consider this real-life example: A calendar spread in Soybeans — long May 2009, short September 2010 — moved from -30 basis points to +206 basis points between January and March. That’s a $11,800 gain per spread on an initial margin cost of just $920. This represents an incredible 1,228% return in five months. Such opportunities are not rare; they regularly appear in grain markets and other seasonally influenced commodities.

Now you can see why futures spread trading remains one of the best-kept secrets among professional traders – offering defined risk, low capital requirements, and exceptional return potential in a more controlled trading environment.