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Definition of 'Spread'

The Spread can be:

1. The difference between the bid and ask price for a stock, future, option or commodity. See bid-ask spread.

2. Simultaneous purchase and sale of two similar futures contracts to attempt to profit from a price disparity. E.g. A trader could go long CME E-mini S&P 500 futures and at the same time short the CME E-mini Russell 2000 futures if the trader thought large cap issues were going to outperform small cap issues.

3. An options position where a trader buys one option and sells another option of teh same class but of a different series.

4. In the bond markets it refers to the difference between the yield of the bond and the yield of a Treasury bond with a comparable maturity. Since the Treasury yield is considered risk-free, the spread reflects the risk premium of the bond. The spread is expressed in basis points (1/100th of 1 percent).

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