Spread

The Spread allows for the comparison of two instruments to isolate the behavior of one relative to the other.

Calculation Method

In Axial Finance, the spread is calculated as the difference between the weighted prices of two instruments:

price instrument A - price instrument B * weighting coefficient

This weighting coefficient is very useful in cases where the prices of the two instruments are significantly different, ensuring that the variation in the spread remains significant.

Example

Interpretation

A Spread involves buying one security and selling another with the aim of profiting from the narrowing or widening of the Spread between the two price series.

For example, one might want to buy gold and sell silver because they expect the price of silver to fall faster (or rise more slowly) than the price of gold.