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Yes, Kevin, positionally it is the same as being flat. It is also different. I am selling my car and took a 5k deposit from the seller. I also gave a car dealer 5k to secure a new car. Is it the same as having no car? Or is effectively having two cars?
Well Kevink, as per your own link this would not be intracommodity spread trading but intramarket spread trading if we start go exacting.
Peace anyway
You brought up an interesting issue: both the near contract and the second near contract should be arbitraged against spot price & carrying cost & expected dividends.
I understand your concern and I would not use the proposed construct but this would imply that the second near contract is not efficiently arbitraged, right?
My timeframe of thinking here is intraday or 2-3 days max.
I shouldn't have been surprised to find more in this thread this morning.
I've said my piece, mainly, but I guess I have a couple of more things to add, too.
1. The ideas in this thread are not the same as other types of "hedging." This is just a tactic to avoid taking a loss, and is ultimately suggested as an alternative to a stop loss order. Other types of hedging, or spreading, or whatever, are different from the question asked, and are really off-topic unless they can be brought back to the question the OP actually has.
2. Assuming that CFD's have a regular kind of stop loss order (which I don't know one way or another), it does the same thing. But this hedging method requires the trader's continued involvement in the positions. That's fine if you want it.
3. The psychological aspect probably is not the same, but in both scenarios you are able to not get into being trapped in large losses. I take it that not being trapped in a losing position is the essential point, and it certainly does the job there. Of course, so does an outright selling out of the long position in the first place, via a stop or just closing the long. From a pure psychological point of view, I think that is way better because it just ends the matter and it can free your mind for the next trade, but I guess that is a personal thing.
4. My basic suggestion is that anyone who is still curious should just do some trading to test out whether they like it. Do it in sim if necessary to prevent possible risk while testing.
I don't know that there is anything more that can be said about this, but I am sure that now that there is so much engagement, there will be more.
I notice that no one who is actually trading this way has kicked in yet. That could add something. If someone does. I hope they will.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
