Trading Vehicles, Stock, ETFs, Futures, and Forex 25

enter the sell side of the spread first because there are no restrictions on en-
tering the long side, just on the short side of the transaction. Let’s say you
enter the long side first without confirmation that you were filled on the
short side; if the market on the position you hold—the long side—goes
down and if both markets moved in tandem, you would need an uptick on
the short side in order to be in the spread. Imagine if you went long first and
the stock dropped. Then when you are finally able to execute the short
side, the market has plunged. That would translate into an actual loss. So if
you do not get filled first on the short side, the worst that can happen is that
you lose a trading opportunity. This is a great example of why traders have
the obligation of knowing all there is about the market they trade in. As you
can see in Figure 1.6, Dell has moved in the same direction as Apple, but
Apple has outperformed as a price leader. The spread opportunity between
these two computer manufacturers, long Apple and short Dell, would have
generated a tidy profit.
Another example of a spread opportunity within competitors of the
same industry or sector would be Best Buy versus Circuit City, as shown in

FIGURE 1.6
RealTick graphics used with permission of Townsend Analytics, LTD.