Mastering Spread Trading: A Complete Guide to Multi-Leg Strategy

Spread trading represents a sophisticated approach to capturing market opportunities by simultaneously establishing positions in related financial instruments. Whether you’re new to this trading method or looking to deepen your understanding, this guide covers everything you need to know about executing multi-leg spread trades efficiently.

How Spread Trading Works

At its core, spread trading involves opening two opposite positions in different instruments at the same time. The strategy pairs instruments such as Spot with Perpetual contracts, Spot with Expiry futures, or two Expiry contracts with different expiration dates (for example, Quarterly versus Bi-Quarterly). By executing both legs simultaneously—one long position and one short position in equal sizes—traders can profit from price discrepancies between these related markets.

The genius of this approach lies in its delta-neutral design. This means your trades aren’t exposed to directional price movements. Instead, you’re isolating and profiting solely from the spread itself—the price difference between the two legs. This fundamental principle makes spread trading distinct from traditional directional trading strategies.

Key Advantages for Active Traders

Modern spread trading platforms have eliminated many traditional trading friction points. Here’s why traders increasingly adopt this approach:

Guaranteed Spread Price: When you execute a spread trade, you know exactly what price differential you’re trading. The system guarantees that both legs fill at calculated prices that precisely match your intended spread order. This removes uncertainty and provides peace of mind.

Synchronized Execution: Both legs fill in matching quantities simultaneously, or neither executes at all. This atomic execution mechanism eliminates what’s known as “leg risk”—the scenario where one leg executes while the other doesn’t, leaving you partially exposed.

Simplified Order Management: Instead of manually placing and monitoring two separate orders across different markets, you execute one spread order and both legs activate instantly. This streamlines the entire process to just a few clicks.

Risk Mitigation Through Hedging: By maintaining opposite positions across related instruments, you effectively shield yourself from adverse price swings. When market volatility spikes, your offsetting positions protect your capital from directional losses.

Access to Strategic Flexibility: Traders can implement sophisticated approaches like Funding Rate Arbitrage, Futures Spread strategies, Carry Trade, and Perp Basis trades—all within a single unified interface designed for multi-leg execution.

Substantial Fee Reduction: Trading spreads costs 50% less in fees compared to placing two individual orders in the regular order book. For VIP members, this discount applies to their existing VIP fee tier, creating even greater savings on every trade.

Essential Terminology and Concepts

The Spread Itself: This is simply the numerical difference between the prices of your two legs. Whether you profit or lose depends on your position direction and how this spread changes between entry and exit.

Important note: spread movements are evaluated on numeric value, not absolute difference. If you enter at a spread of -100 and it moves to -80, the spread has increased. If it moves to -120, the spread has decreased.

Order Price vs. Mark Price: The order price represents your intended spread value—the difference you want to trade. The mark price for each leg is the current market reference price used to calculate your actual entry prices for both legs.

Order Quantity: This determines the size of your combo trade. Once executed, both legs maintain identical position sizes.

Combo Structure: Your paired trade consists of two legs with different expiration timelines. Possible combinations include Spot & Perpetual, Spot & Expiry, Perpetual & Expiry, or dual Expiry contracts.

Near Leg vs. Far Leg: The near leg expires first chronologically. The far leg expires later. The ranking from nearest to farthest is: Spot (no expiration) > Perpetual (no expiration date) > near-term Expiry > forward Expiry.

Order Direction Logic:

• Buy combo: You purchase the far leg and sell the near leg
• Sell combo: You sell the far leg and purchase the near leg

Execution Mechanics and Protection

Spread trading supports Limit orders and Market orders using various strategies including Post-Only, Good-Till-Canceled (GTC), Immediate Or Cancel (IOC), and Fill Or Kill (FOK) settings. The platform operates in One-Way position mode with both Cross Margin and Portfolio Margin options available.

The atomic execution mechanism ensures that both legs either fill completely in equal quantities or the entire order cancels. This protection prevents the partial-fill scenario that creates unwanted directional exposure.

Understanding Entry Price Calculations

Your actual entry prices for each leg are calculated dynamically based on the spread price you specify and the current mark prices of both instruments. The formulas are:

Order Price = Far Leg Entry Price − Near Leg Entry Price

Far Leg Entry Price = (Far Leg Mark Price + Near Leg Mark Price + Order Price) ÷ 2

Near Leg Entry Price = (Far Leg Mark Price + Near Leg Mark Price − Order Price) ÷ 2

Concrete Example: Suppose you sell a Spot-Perpetual combo with an order price of $50. The Spot index is $1,000 and the Perpetual mark price is $1,100. Your actual entry prices would be:

• Perpetual Entry: ($1,100 + $1,000 + $50) ÷ 2 = $1,075
• Spot Entry: ($1,100 + $1,000 − $50) ÷ 2 = $1,025

This ensures your locked-in spread matches your order specification precisely.

Profit Scenarios Explained

Buying a Combo Strategy: When you buy a combo, you purchase the far leg and sell the near leg. Your profit materializes when the spread between the two legs expands. Here’s an illustrative scenario:

Selling a Combo Strategy: When you sell a combo, you sell the far leg and buy the near leg. Your profit emerges when the spread contracts. Example:

Cost Savings Through Spread Trading

The fee advantage represents one of spread trading’s most tangible benefits. Executing your spread through the dedicated spread trading interface costs exactly 50% less than placing two separate orders in the standard order book. VIP traders receive this 50% reduction applied to their existing VIP fee rate, amplifying cost efficiency for active traders.

Consider the impact: if your typical order book fees equal 0.1% per leg (0.2% total for two legs), spread trading reduces this to 0.1% total—an enormous difference across high-volume trading activity.

Risk Management and Margin Considerations

When Spot instruments participate in your spread combo, you can independently choose whether to enable margin leverage or trade with cash only. Leverage settings adjust individually per leg, with maximums of 10x for Spot and 100x for Futures instruments.

Once your spread trade executes, both legs function as standard positions in their respective markets. They follow conventional margin requirements and standard liquidation protocols. You can manage or close positions either through the spread trading interface itself or directly in their individual markets.

This integration with standard margin mechanics means your existing risk management framework applies seamlessly to all spread positions, protecting your capital through familiar liquidation safeguards and margin rules.