Futures Spread Ratios Explained: Why 1:1 Is Not Always Neutral
Learn how futures spread leg ratios work, why equal contract counts may leave residual risk, and how multipliers, DV01, currency, and sensitivity affect sizing.
Direct answer
A futures spread ratio states how many contracts of each leg belong to one spread unit. A 1:1 ratio balances contract count, not necessarily dollar sensitivity, so some spreads use ratios such as 2:3 or add a small tail.
A spread ratio defines leg quantities
A 2:3 spread means one spread unit contains two contracts of one leg and three of the other.
Buying four 2:3 spread units therefore creates eight contracts in the first leg and twelve in the second.
The exact buy and sell direction comes from the venue's strategy definition.
Futures spread orders versus legging explains why the listed strategy and its legs must be read together.
Equal contract counts can leave unequal risk
Two futures can have different contract multipliers, currencies, tick values, or price sensitivities.
A 1:1 trade therefore does not prove that a common market move will offset equally.
For interest-rate futures, DV01 can be more useful than contract count because it measures the dollar response to a one-basis-point yield move.
For other markets, the relevant comparison may be point value, notional, beta, or another documented sensitivity.
Worked example: compare 1:1 with 2:3
Assume leg A changes by $40 for a one-point move and leg B changes by $25.
A long-one-A, short-one-B 1:1 spread keeps $40 - $25 = $15 of common one-point exposure.
A 2:3 ratio gives $80 on A and $75 on B, leaving only $5 for the same simplified move.
Four 2:3 spread units contain eight A and twelve B contracts. The residual common-move exposure is $320 - $300 = $20.
This example assumes both legs move one point together. Real correlations, basis moves, and sensitivities can change.
Ratios can be designed around a risk measure
CME documents Treasury calendar spreads with tails because nearby and deferred contracts can have different DV01.
CME also lists inter-commodity ratios that reflect different contract sizes or risk weights.
A ratio is therefore an engineering choice for the strategy, not a promise of perfect neutrality.
Even a risk-weighted ratio can drift as prices, exchange rates, deliverables, or sensitivities change.
Spread quantity is not total contract quantity
For a 4:7 listed ratio, five spread units mean 20 contracts in one leg and 35 in the other.
That is 55 outright contracts created by five strategy units.
Always distinguish the spread-order quantity from each leg quantity when checking fills, fees, margin, and position limits.
Futures tick value and contract multiplier helps convert the resulting legs into cash sensitivity.
Use a ratio-spread checklist
- Confirm the venue's exact leg order and ratio - Multiply spread quantity by each leg quantity - Compare multiplier, currency, and sensitivity for both legs - State the risk measure used to justify the ratio - Recalculate after a large price, FX, or sensitivity change - Check liquidity, margin treatment, expiry, and leg positions after execution [!TRYMARK] Spread-ratio checkpoint On September 18, record the 2:3 ratio, four spread units, eight A contracts, twelve B contracts, $40 and $25 point sensitivities, then verify the $20 residual common-move exposure.
A ratio can reduce a chosen mismatch without eliminating spread, basis, liquidity, or execution risk.
Common questions
What does a 2:3 futures spread ratio mean?
One spread unit uses two contracts of one leg and three of the other. The strategy definition determines which leg is bought or sold.
Is a 1:1 futures spread market neutral?
Not automatically. It matches contract counts only. Different multipliers or sensitivities can leave residual exposure.
Why do Treasury futures spreads sometimes have tails?
Nearby and deferred contracts can have different DV01. A tail adds or removes contracts to bring the chosen interest-rate sensitivity closer to the intended level.
Can the best spread ratio change over time?
Yes. Prices, FX rates, deliverables, DV01, beta, and other risk measures can change. A ratio that was close to neutral at one checkpoint can later leave a larger mismatch.