I heard that there is no bid-ask spread in futures markets. Could anyone explain why there would be no difference between the selling and buying price of a futures contract?
Thanks in advance!
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11$\begingroup$ There must be some misunderstanding. I have never heard this "fact" and I have traded futures for years. They have a bid ask spread just like anything else. $\endgroup$– nbbo2Commented Sep 16, 2020 at 9:18
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$\begingroup$ Oh sorry, maybe in commodity futures markets? If so, why? $\endgroup$– mbz0Commented Sep 16, 2020 at 9:23
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5$\begingroup$ All futures markets have a bid-ask spread. You have been misinformed. $\endgroup$– Chris TaylorCommented Sep 16, 2020 at 10:05
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5$\begingroup$ It's plausible that someone said to you that liquid futures markets have "no" bid-ask spread, when what they meant was "negligible" spread, for your business purposes. $\endgroup$– Brian BCommented Sep 16, 2020 at 15:26
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$\begingroup$ when you say there is no bid/offer, do you mean that the bid and the ask are the same? or that there are no quotes? Some futures from time to time have no bid offer. $\endgroup$– willCommented Sep 16, 2020 at 20:49
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2 Answers
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There is usually always at least 1-tick spread. I used to trade Bund and Treasury futures: For example there could be 500 bids for Bund futures at price 173.11, 800 at price 173.10, whilst there are 250 offers at 173.11 and 700 at 173.12. The 250 buy and sell orders at 173.11 clear immediately, then there would be 250 bids left (out of the original 500) at 173.11 and there would 700 offers at 173.12. If you wanted to buy, you'd have to pay 173.12, if you wanted to sell, you'd have to sell at 173.11.
In market distress, the bid-offer spread can easily widen to 5 ticks. During market data releases, algos take over and the price changes so quickly that a human trader has no chance to execute effectively. Also, for Bund futures, the bid-offer spread widens in the last hour of trading (9pm to 10pm european time). Additionally, the Bund and Treasury futures contracts expire in March, June, Sep, Dec each year: the last couple of days before expiry, the bid-offer spread can also widen.
answered Sep 16, 2020 at 9:24
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This is incorrect. There is always a bid/ask spread in futures markets. Futures are different from equities in that there is only one market that can trade them. That guarantees that there is one central location with one book that is always unlocked (and uncrossed).
