According to the different operating objects, spread trading can be divided into three types: intertemporal arbitrage and cross-species arbitrage.
1. Spot arbitrage
Spot arbitrage refers to the arbitrage trading conducted by investors according to the price difference between the stock index futures contract and its underlying index. When the price difference between the stock index futures contract price and the contract price reaches a certain level, investors can "buy undervalued assets and sell overvalued assets", and then conduct the opposite transaction after the price difference between them returns to the normal price difference level.
2. Intertemporal arbitrage
It refers to the arbitrage trading conducted by traders according to the price difference between futures contracts of the same variety on the same exchange but with different delivery months. For example, when the price difference between the IF 1009 contract and the if1kloc-0/2 contract of the Shanghai and Shenzhen 300 stock index futures reaches a certain level, investors can carry out intertemporal arbitrage.
3. Cross-market arbitrage
It refers to arbitrage trading based on the price difference between two futures contracts listed on different exchanges, with the same variety (underlying index) and the same delivery month. The most typical one is the Nikkei 225 Index, and the stock index futures contracts based on this index are traded on relevant exchanges in Japan, Singapore and the United States. When the contract price difference between different exchanges reaches a certain level in a certain month, investors can carry out cross-market arbitrage.
4. Cross-variety arbitrage
Refers to arbitrage trading based on the price difference between two futures contracts with the same delivery month but different underlying indexes. Of course, there must be a certain correlation between these two underlying indexes, and the higher the correlation, the better. These two futures contracts can be traded on the same futures exchange or on different exchanges.