GLOSSARY
Investment Glossary
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Blockchain
A decentralized digital ledger
that
records transactions across multiple computers securely.
Altcoins
Cryptocurrencies other than
Bitcoin,
such as Ethereum, Ripple, and Litecoin.
Stablecoins
Cryptocurrencies designed to
minimize price volatility by being pegged to a stable asset like the US dollar.
NFT (Non-Fungible Token)
A unique digital asset verified using
blockchain technology, often representing art, collectibles, or virtual real estate.
DeFi (Decentralized Finance)
A financial ecosystem that operates
without traditional intermediaries, using blockchain and smart contracts.
Staking
The process of holding
cryptocurrency
in a wallet to support a blockchain network and earn rewards.
LETTER A
Abandon
This occurs when an option holder
chooses not to exercise or offset an option.
Access
The New York Mercantile Exchange’s
electronic trading platform, which is only available for futures contract trading during U.S. evening hours.
Accrued Interest
Interest that is earned
between the most recent interest payment and the present date, but has not yet been paid to the lender.
Actuals
These are physical products that
have been bought and sold in the spot market.
Add on Method
A method where the interest
to be paid is added onto the principal at maturity or interest payment dates.
Adjusted Futures Price
The cash-price
equivalent reflected in the current futures price, calculated as futures price times conversion factor for
the particular financial instrument being delivered (such as a bond or a note).
Adjusted Total Equity
AKA: ATE The
remainder after subtracting any funds not cleared from an account’s total equity.
Aggregation
The combination of all futures
positions that are owned or controlled by one trader or a group of traders to determine reportable positions
and speculative limits.
All Could
An order that has been only
partially executed. This often applies to a limit order that could not completely be filled, due to a lack
of interest in buying or selling at that price.
Allowances
The discounts (premiums) that a
buyer is allowed for the grades or locations of a commodity lower (higher) than the par or basis grade or
location specified in the futures. Also called differentials.
Alternate Delivery Procedure
AKA: ADP A
contract delivery method that permits buyers and sellers to settle delivery commitments, independently of
the exchange.
Approved Delivery Facility
A bank,
stockyard, mill, store, warehouse, plant, elevator, or other institution that is exchange-authorized for
delivery of exchange contracts.
Arbitrage
The simultaneous purchase and
sale of similar commodities in different markets to profit from price discrepancies.
Arbitration
An informal hearing to settle
disputes between members, or between members and customers.
Ask
The price at which a party is willing
to sell, also known as the offer price.
Ask Size
The number of futures or options
contracts offered at a quoted ask price.
Assignment
To make an option seller
complete the requirements of the option contract. For a call (put) option, the writer would have to sell
(buy) the underlying security at the stated strike price.
Associated Person
AKA: AP Participants
within the futures market who are involved in the solicitation or facilitation of transacting customer
orders, maintaining discretionary accounts, or true participation in the futures market.
At the Market
An order to buy or sell at
the best price obtainable at the time the order is received. See Market Order.
At the Money Option
An option with a
strike price that is equal, or approximately equal, to the current market price of the underlying futures
contract.
LETTER B
Back Months
Futures delivery months that
have expiration or delivery dates furthest into the future. These are also called deferred or forward
months.
Backwardation
A futures market in which
the front month is higher in price than the back months. It is the opposite of Contango. See Inverted
Market.
Balance of Payments
AKA: BOP A summary of
transactions between one country and all other countries during a specified time period.
Bar Chart
A chart that graphs high, low,
and settlement prices for a specific trading session over a given period of time—which is used to spot
trends and patterns in technical analysis.
Base Currency
The first currency quoted in
a currency pair on forex, which is typically considered the domestic currency or accounting currency.
Basis
The difference between the current
cash price and the futures price of the same commodity.
Basis Grade
The minimum accepted standard
that a deliverable commodity must meet for use as the actual of a futures contract—also known as par or
contract grade.
Bear
One who believes prices will move
lower. See Bull.
Bear Market
A market in which prices are
declining.
Bear Spread
Selling the nearby contract
month and buying the deferred contract, to profit from a change in the price relationship.
Bid
An expression of being willing to buy
a commodity at a given price; the opposite of Offer.
Bid Size
The number of futures or options
contracts bid at a certain price.
Book Entry Securities
Electronically
recorded securities that include each creditor’s name, address, Social Security or tax identification
number, and dollar amount loaned, (i.e., no certificates are issued to bond holders, instead, the transfer
agent electronically credits interest payments to each creditor’s bank account on a designated date).
Break
A rapid, sharp decline in price.
Bretton Woods Agreement
A 1944 agreement
(made in Bretton Woods, New Hampshire), which established fixed foreign exchange rates for major currencies,
provided for central bank intervention in the currency markets, and pegged the price of gold at U.S. $35 per
ounce. The agreement was overturned by President Richard Nixon in 1971, and he established a floating
exchange rate for the major currencies.
Broker
A firm or individual that executes
futures and options orders on behalf of other parties.
Brokerage Commission
Brokerage Commission
– also referred to as a brokerage fee, is the fee charged by a broker to a customer for executing a trade.
While often referred to in the same breath, a commission and a fee are two totally different things. A
brokerage commission is the money the broker makes when he or she places a trade or other transaction on
behalf of the account owner. A brokerage fee on the other hand, is a flat rate the agency or clearing firm
charges for the management of the account, this is usually a percentage of the account value. Many
full-service brokerages collect a large percentage of their profit from commissions. Commission fees range
widely from brokerage to brokerage, so it is important to find the one that works best for you.
Bull
One who believes prices will rise.
See Bear.
Bull Market
A market in which prices are
rising.
Bull Spread
Buying the nearby month and
selling the deferred month to profit from the change in the price relationship.
Bust
The undoing of a trade that
previously was reported in error.
Butterfly Spread
The placing of two
interdelivery spreads in opposite directions with the center delivery month being common to both spreads.
Buy
A transaction that indicates you wish
to make a purchase or to go long. Opposite of selling or going short.
Buy In
Covering or closing out a short
position. See Offset.
Buy On Close
Buying at the end of the
trading session, at a price within the closing range.
Buy On Opening
Buying at the beginning of
the trading session, at a price within the opening range.
LETTER C
COM Membership
A Chicago Board of Trade
membership that allows an individual to trade contracts listed in the commodity options market category.
CQG
This RJO Futures quote and trading
platform, provided by CQG (Comprehensive Quotes and Graphics), is a powerful execution platform for traders
who don’t need technical analysis tools. It includes a depth-of-market trading order execution interface, an
Orders & Positions view, and a Quote Board—among other helpful tools.
Cabinet Trade
Allows options traders to
liquidate deep-out-of-the-money options by trading the options at a price equal to less than one tick, this
often amounts to a price one half of one percent of the face value. A cabinet trade is used as the final
nail in the coffin of what is more or less a useless option in order to help recoup a fraction of the losses
and is the lowest possible tradable price for the option. It should also be noted that a cabinet trade
cannot be used to initiate short or long positions. It’s basically an “end all be all” last resort.
Call
An option contract that gives the
owner the right (but not the obligation) to buy a security or commodity at a predetermined price within a
given time period. Also, an exchange-designated buying and selling period, during which trading is conducted
to establish a price range for a particular time.
Call Option
An option that gives the buyer
the right, but not the obligation, to purchase (“go long”) the underlying futures contract at the strike
price on or before the expiration date.
Cancel
AKA: Replace To modify an existing
pending or working order by price, type, or quantity.
Cancel Order
To abort a pending or working
order. If a trader attempts to cancel an order that has already been executed, but has not yet been reported
as having been filled, it will be “too late to cancel” when the order is reported as filled.
Car
Derived from when quantities of the
product specified on a contract often corresponded to the quantity carried in a railroad car, this is a
loose, quantitative term sometimes used to describe a contract (e.g., "car of bellies").
Carrying Broker
A member of a futures
exchange (usually a clearinghouse member) through which another firm, broker, or customer chooses to clear
all or some trades.
Carrying Charge
The cost of storing a
physical commodity, such as grain or metals, over a period of time. Carrying charge includes insurance,
storage and interest on the invested funds, as well as other incidental costs. It is also referred to as
Cost of Carry.
Carryover
Grain and oilseed commodities
not consumed during the marketing year, which remain in storage at year’s end. The stocks are "carried over"
into the next marketing year, and added to the stocks produced during that crop year.
Cash Commodity
An actual physical
commodity, as distinguished from a futures commodity. It is also referred to as Actuals.
Cash Contract
A sales agreement for either
immediate or future delivery of the actual product.
Cash Market
A place where people buy and
sell the actual commodities. See Spot and Forward Contract.
Cash Settlement
Settling certain futures
or options contracts in cash—rather than delivery of the commodity.
Central Bank
A financial institution that
has official or semiofficial status in a federal government. They are used by governments to expand,
contract, or stabilize the supply of money and credit. For example, the U.S. central bank is the Federal
Reserve, and the ECB (European Central Bank) manages monetary policy for the European Union.
Certificate of Deposit
AKA: CD A time
deposit with a specific maturity evidenced by a certificate.
Certified Stocks
Quantities of commodities
that are designed and certified for delivery by an exchange, under its trading and testing regulations at
delivery points specified and approved by the exchange.
Charting
The use of graphs and charts to
analyze market behavior and anticipate future price movements in the technical analysis of futures markets.
Charting is used to plot price movements, volume, open interest, or other statistical indicators of price
movement. See Technical Analysis.
Cheapest to Deliver
Determining which cash
debt instrument is most profitable to deliver against a futures contract.
Circuit Breaker
Trading halts on equities
and derivatives markets to provide a cooling-off period during large, intraday market declines set at 7%,
13%, and 20% of the closing price for the previous day.
Clear
The process by which a clearinghouse
maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing
members.
Cleared Funds
Bank wire transfers and
cashier’s checks drawn on U.S. banks represent cleared funds.
Clearing Margin
Clearing margins are
financial safeguards that ensure clearing members (usually companies or corporations) perform on their
customers’ open futures and options contracts. Clearing margins are distinct customer margins that
individual buyers and sellers of futures and options contracts are required to deposit with brokers. What it
boils down to, clearing margins are liquid funds that brokerages and other clearing firms must have instant
access to in order to guarantee the completion of transactions with customers. They must have enough money
to be able to pay out all open positions on accounts, should the client decide to sell their position.
Clearing Member
A member of an exchange
clearinghouse, responsible for the financial commitments of its customers. All trades of a non-clearing
member must be registered and eventually settled through a clearing member.
Clearinghouse
An agency or separate
corporation of a futures exchange that settles trading accounts, collects and maintains margin monies,
regulates delivery and reports trade data. Clearinghouses act as third parties to all futures and options
contracts, acting as a buyer to every clearing member seller and a seller to every clearing member buyer.
Clerk
A member’s employee who has been
registered to work on the trading floor as a phone person or runner.
Close
The end of a trading session.
Trading resumes upon the opening the following business day. Sometimes used to refer to the closing price.
See Open.
Closing Price
See Settlement Price.
Closing Range
A range of prices at which
futures transactions took place during the close of the market.
Commercial
An entity involved in the
production, processing, or merchandising of a commodity.
Commercial Stocks
Commodities that are in
storage in public and private elevators or warehouses at important markets and afloat in vessels or barges
in harbors and ports.
Commission
A fee charged by a broker to a
customer for executing a transaction. Also referred to as brokerage fee.
Commission House
See Futures Commission
Merchant.
Commitment
When a trader assumes the
obligation to accept or make delivery by entering into a futures contract. See Open Interest.
Commodity
An article of commerce or a
product that can be used for commerce, including agricultural products, metals, petroleum, foreign
currencies, and financial instruments and indexes.
Commodity Exchange Act
AKA: CEA Federal
act passed in 1936 that established the Commodity Exchange Authority and placed futures trading in a wide
range of commodities under the regulation of the government.
Commodity Futures Modernization Act of 2000
AKA:
CFMA The act of Congress that authorized the trading of single stock futures and narrow-based stock index
futures. This legislation also made the CFTC responsible for the oversight and regulation of the foreign
exchange market.
Commodity Futures Trading Commission
AKA:
CFTC The federal regulatory agency established in 1974 that administers the Commodity Exchange Act. The CFTC
monitors the futures and options on futures markets in the United States. The commission is independent of
all cabinet departments, and comprises five commissioners who were appointed by the President and subject to
Senate confirmation.
Commodity Pool
An enterprise in which
funds contributed by a number of persons are combined for the purpose of trading futures or options
contracts.
Commodity Pool Operator
AKA: CPO An
individual or organization that operates or solicits funds for a commodity pool. CPOs are generally required
to be registered with the CFTC.
Commodity Trading Advisor
AKA: CTA A
person who advises others as to the value of or advisability of buying or selling futures contracts or
options or trades on the customer’s behalf. A CTA trades other people’s money, and generally must be
registered with the CFTC.
Confirmation Statement
A statement sent by
a Futures Commission Merchant to a customer when a futures or options position has been initiated. The
statement shows the price and the number of contracts bought or sold, and is sometimes combined with a
Purchase and Sale Statement.
Consumer Price Index
AKA: CPI A major
inflation measure computed by the U.S. Department of Commerce. It measures the change in prices of a fixed
market basket of some 385 goods and services in the previous month.
Contango
A condition when the front month
prices are lower than the back month prices. This is normal for most markets because back months include
carrying costs (interest, storage, etc). The opposite of Backwardation.
Contract
A unit of trading in futures.
Also, the actual bilateral agreement between buyer and seller in a futures transaction.
Contract Grade
The grade of commodity
that has been approved by an exchange as deliverable in settlement of a futures contract. See Basis Grade,
Par.
Contract Market
A board of trade
designated by the CFTC to trade futures or options contracts on a particular commodity. It is commonly used
to mean any exchange on which futures are traded. Also referred to as an Exchange.
Contract Month
The month in which
delivery is to be made in accordance with the terms of the futures contract—also known as Delivery Month.
Convergence
The tendency for prices of
physical commodities and futures to approach one another, usually during the delivery month. Also known as a
"narrowing of the basis."
Conversion Factor
Used to equate the
price of Treasury bond and Treasury note futures contracts with the various cash Treasury bonds and Treasury
notes eligible for delivery.
Cost and Freight
AKA: C&F This is paid to
move a commodity to a port of destination.
Cost insurance and freight
AKA: CIF This
is paid to move a commodity to a port of destination. It is included in the price quoted.
Cost of Carry
See Carrying Charge.
Counter Trend Strategy
A trading strategy
that attempts to profit by small gains through a series of trades against the current market trend. Many
counter-trend trading strategies utilize momentum indicators when determining trading opportunities.
Counterparty
One of the participants in a
financial transaction, typically in FX transactions.
Coupon
The interest rate on a debt
instrument, expressed in terms of a percent on an annualized basis that the issuer guarantees to pay the
holder until maturity.
Cover
To purchase or sell futures to
offset a previously established position.
Covered Option
A short call or put option
position, which is covered by the sale or purchase of the underlying futures contract or physical commodity.
Crop Marketing Year
AKA: Crop Year The
period of time from one harvest or storage cycle to the next; varies with each commodity.
Crop Reports
Reports compiled by the U.S.
Department of Agriculture on various ag commodities that are released throughout the year. These include
estimates on planted acreage, yield, and expected production—as well as comparison of production from
previous years.
Cross Hedging
Hedging a cash commodity,
using a different but related futures contract when there is no futures contract for the cash commodity
being hedged and the cash and futures market follow similar price trends (e.g., using soybean meal futures
to hedge fish meal).
Cross Rate
The exchange rate between any
two currencies that are considered non-standard in the country where the currency pair is quoted.
Crush Spread
The purchase of soybean
futures and the simultaneous sale of soybean oil and meal futures. See Reverse Crush.
Current Yield
The ratio of the coupon to
the current market price of the debt instrument.
Customer Margin
Funds required of both
buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract
obligations.
Customer Segregated Funds
See Segregated
Account.
LETTER D
Daily Trading Limit
The maximum price
range set by the exchange each day for a contract.
Day Order
An order that is placed for
execution, if possible, during only one trading session. If the order cannot be executed that day, it is
automatically canceled.
Day Trader
Speculators who take positions
in futures or options contracts, then liquidate them prior to the close of the same trading day.
Day Trading
Refers to establishing and
liquidating the same position or positions within the same trading session.
Dealer
An individual or firm acting as a
principal or counterparty to a transaction. Principals take one side of a position, hoping to earn a spread
(profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an
individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or
commission.
Debit Balance
An account with no
positions and a negative adjusted total equity. A debit balance typically arises as a result of a trader
losing more money in the marketplace than was available in the account.
Deck
The collection of customer orders to
purchase or sell futures and option contracts held by a floor broker in the trading pit.
Default
The failure to perform on a
futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take
delivery.
Deferred Delivery Month
The distant
delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery
month.
Deferred Futures
Futures contracts that
expire during the more distant months. See Nearbys.
Delayed Quotes
Market quotations that are
delayed by the various futures exchange’s required time periods, usually 10-20 minutes.
Deliverable Grades
The standard grades of
commodities or instruments listed in the rules of the exchanges that must be met when delivering cash
commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums
allowable for delivery of commodities of lesser or greater quality than the standard called for by the
exchange.
Delivery
The tender and receipt of an
actual commodity, warehouse receipt, or other negotiable instrument covering such commodity in settlement of
a futures contract.
Delivery Commitment
For buyers, the
written notice given by the buyer of his intention to take delivery against a long futures position on
delivery day. For sellers, the written notice given by the seller of his intention to make delivery against
the short futures position on delivery day.
Delivery Month
A specific month in which
delivery may take place under the terms of a futures contract. Also referred to as contract month.
Delivery Notice
The written notice given
by the seller of his intention to make delivery against an open short futures position on a particular date.
Delivery Points
Locations designated by
futures exchanges where the physical commodity covered by a futures contract can be delivered in fulfillment
of such contract.
Delivery Price
The price fixed by the
clearinghouse at which deliveries on futures contracts are invoiced. Also, the price at which the futures
contract is settled when deliveries are made. See Settlement Price.
Delta
A measure of how much an option
premium changes, given a unit change in the underlying futures price. Delta often is interpreted as the
probability that the option will be in-the-money by expiration.
Derivative
A financial instrument, traded
on or off an exchange, the price of which is directly dependent upon the value of one or more underlying
securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon
pricing index or arrangement. Derivatives involve the trading of rights or obligations based on the
underlying product, but do not directly transfer property—and they are used to hedge risk or to exchange a
floating rate of return for a fixed rate of return.
Designated Self Regulatory Organization
AKA: DSRO When a Futures Commission Merchant (FCM) is a member of more than one SRO, the SROs may decide
among themselves which of them will be primarily responsible for enforcing minimum financial and sales
practice requirements. The SRO will be appointed DSRO for that particular FCM. NFA is the DSRO for all
non-exchange member FCMs. See Self-Regulatory Organization.
Devaluation
A formal "official" decrease
in the value of a country’s currency, typically by that country.
Differentials
Price differences between
classes, grades, and delivery locations of various stocks of the same commodity. See Allowances.
Disclosure Document
A statement that must
be provided by a Commodity Trading Advisor or Commodity Pool Operator to prospective customers describing
trading strategy, fees, performance, etc.
Discount
Less than par. If a future
delivery is selling at a discount to the spot delivery, then it’s selling for a lower price than the spot
price. See Premium.
Discount Method
A method of paying
interest by issuing a security at less than par, and repaying par value at maturity. The difference between
the higher par value and the lower purchase price is the interest.
Discount Rate
The interest rate charged
on loans by the Federal Reserve to member banks.
Discretionary Account
An account over
which any individual or organization, other than the person in whose name the account is carried, exercises
trading authority or control. Also referred to as a controlled or managed account.
Drawdown
An investment is said to be in a
drawdown when its price falls below its last peak. The drawdown percentage drop in the price of an
investment from its last peak price. The period between the peak level and the trough is called the length
of the drawdown period between the trough and the recapturing of the peak is called the recovery.
LETTER E
Econometrics
The application of
statistical and mathematical methods in the field of economics to test and quantify economic theories and
the solutions to economic problems.
Electronic Clerk
AKA: EC The electronic
order management device used by many floor brokers in the trading pits at the Chicago Board of Trade.
Electronic Order
An order placed
electronically (without the use of a broker), either via the Internet or an electronic trading system.
Electronic Trading Hours
AKA: ETH The
U.S. after-hours markets during the evenings. Futures contracts trading during ETH do so on electronic trade
matching platforms such as Chicago Board of Trade’s A/C/E, Chicago Mercantile Exchange’s GLOBEX, and New
York Mercantile Exchange’s ACCESS.
Emerging CTA
An emerging CTA is one whose
track record is less than five years and has less than $100 million dollars in assets under management.
Eurodollars
U.S. dollar deposits held
abroad. Holders can include individuals, companies, banks and central banks.
European Central Bank
AKA: ECB The
Central Bank for the European Union.
European Terms
A method of quoting
exchange rates, which measures the amount of foreign currency needed to buy one U.S. dollar (i.e., foreign
currency unit per dollar). See Reciprocal of European Terms.
European Union
The principal goal of the
European Union (EU) has been to establish a single European currency called the Euro, to officially replace
the national currencies of the member EU countries. The current members are Germany, France, Belgium,
Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain, and Portugal.
Evening Up
Buying or selling to offset an
existing market position. See Liquidation.
Ex Pit Transactions
Trades executed, for
certain technical purposes, in a location other than the regular exchange trading pit.
Exchange
See Contract Market.
Exchange Rate
The value of one currency
stated in terms of another currency.
Exchange for Physicals
AKA: EFP A
transaction in which a physical commodity position is traded for a futures position. Also referred to as
"against actuals" or "versus cash."
Exercise
The action taken by the holder
of a call option if he or she wishes to purchase the underlying futures contract or by the holder of a put
option if he or she wishes to sell the underlying futures contract.
Exercise Price
The price at which the
futures contract underlying a call or put option can be purchased (if a call) or sold (if a put). Also
referred to as strike price.
Expiration
The last day that an option
may be exercised into the underlying futures contract. Also, the last day of trading for a futures contract.
Extrinsic Value
The difference between an
option’s price and the intrinsic value. Also known as time value.
LETTER F
Face Value
The amount of money printed on
the face of the certificate of a security; the original dollar amount of indebtedness incurred.
Fast Market
A market that has been
designated by the pit committee as experiencing unusual volume or volatility. During such conditions, floor
brokers handling customer orders are excused from many of the normal standards with respect to executing
orders and reporting fills.
Federal Funds
Member bank deposits at the
Federal Reserve; these funds are loaned by member banks to other member banks.
Federal Funds Rate
The rate of interest
charged for the use of federal funds.
Federal Reserve System
A central banking
system in the United States, created by the Federal Reserve Act in 1913. It was designed to assist the
nation in attaining its economic and financial goals. The structure of the Federal Reserve System includes a
Board of Governors, the Federal Open Market Committee, and 12 Federal Reserve Banks.
Feed Ratio
A ratio used to express the
relationship of feeding costs to the dollar value of livestock. See Steer/Corn Ratio.
Fill
AKA: FOK To execute an order. Also,
an executed order.
Fill or Kill
An order which must be
filled immediately and in its entirety—otherwise, the order automatically will be cancelled.
Financial Instrument
There are two basic
types of financial instruments: a debt instrument (which is a loan with an agreement to pay back funds with
interest) and an equity security (which is a share or stock in a company).
First Notice Day
The first day, varying
by commodities and exchanges, on which notices of intentions to deliver actual commodities against futures
are authorized.
Floor Broker
An individual who executes
orders on the trading floor of an exchange for any other person. A floor broker executing orders must be
licensed by the CFTC.
Floor Trader
A member of an exchange, who
trades for his/her own account or one controlled by him/her on the floor of the exchange. Also referred to
as a "local."
Foreign Exchange
The foreign exchange
market, also referred to as the forex market.
Forex Futures
AKA: Forex or FX A
shortened term for foreign exchange futures, also known as FX or currency futures. Forex futures are
exchange-traded contracts to buy or sell a specified amount of a currency on a set future date, at a
specified price.
Forex Market
An over-the-counter market
where buyers and sellers conduct foreign exchange business by telephone and other means of communication.
Also referred to as foreign exchange market.
Forward
In the future.
Forward Cash Contract
AKA: Forward
Contract A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime
in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not
standardized.
Full Carrying Charge Market
A method of
anticipating future price movement using supply and demand information.
Fundamental Analysis
A method of
anticipating future price movement using supply and demand information.
Funds Not Cleared
The total amount of any
deposits temporarily unavailable for trading until funds have cleared.
Futures
Standardized contracts covering
the sale of commodities for future delivery on a futures exchange.
Futures Commission Merchant
AKA: FCM An
individual or organization that solicits or accepts orders to buy or sell futures contracts or commodity
options, and accepts money or other assets from customers in connection with such orders. An FCM must be
registered with the CFTC.
Futures Contract
A legally binding
agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are
standardized according to the quality, quantity, and delivery time and location for each commodity.
Futures Exchange
A central marketplace
with established rules and regulations where buyers and sellers meet to trade futures and options on futures
contracts.
Futures Industry Association
AKA: FIA The
national trade association for Futures Commission Merchants.
LETTER G
Gamma
A measurement of how fast delta
changes, given a unit change in the underlying futures price.
Give Up
A give up is an order that, at
the request of the customer, is credited to a brokerage house that has not performed the execution service.
In a much simpler sense, a give up is when the broker placing the order is not credited with the order, it
is credited to another broker or brokerage firm. They’re “giving up” the transaction. The most common
scenario when a give up will occur is when a client wants to place a trade and their normal broker cannot
place the trade for whatever reason. Since the introduction of electronic and automated trading, the give up
has become less and less popular, although it is still used in certain situations.
Global Macro Strategy
Commodity Trading
Advisors that utilize a global macro approach to managing assets primarily focus on the overall economic and
political views of various countries, along with other macroeconomic principles to determine trading
opportunities.
Globex
The Chicago Mercantile Exchange’s
electronic trading platform.
Good Thru Date
A good thru date, or GTD,
is an order that works until executed or cancelled, or until the end of the trading session on the date
specified by the trader. A good thru date is most commonly associated with a stop order or limit order and
it specifies that the order will be valid until the expiration date unless the order is amended, executed,
or cancelled beforehand. A good thru date is helpful to traders who are especially active as it creates a
definitive timeline for them and keeps them from prematurely executing trades.
Good Till Cancelled
AKA: GTC An order
worked by a broker until it can be filled or until cancelled. See Open Order.
Grading Certificate
A paper setting forth
the quality of a commodity as determined by authorized inspectors or graders.
Grain Terminal
Large grain elevator
facility with the capacity to ship grain by rail and/or barge to domestic or foreign markets.
Grantor
A person who sells an option and
assumes the obligation to sell (in the case of a call) or buy (in the case of a put) the underlying futures
contract at the exercise price. Also referred to as an Option Seller or Writer.
Gross Domestic Product
AKA: GDP The value
of all final goods and services produced by an economy over a particular time period—normally a year.
Gross National Product
AKA: GNP Gross
Domestic Product plus the income accruing to domestic residents as a result of investments abroad less
income earned in domestic markets accruing to foreigners abroad.
Gross Processing Margin
AKA: GPM The
difference between the cost of soybeans and the combined sales income of the processed soybean oil and meal.
LETTER H
Haircut
In determining the worth of
assets deposited as collateral or margin, a reduction from market value.
Hedge
The purchase or sale of a futures
contract as a temporary substitute for a cash market transaction to be made at a later date. Usually it
involves opposite positions in the cash market and futures market at the same time. See long hedge, short
hedge.
Hedger
An individual or company owning or
planning to own a cash commodity such as corn, soybeans, wheat, U.S. Treasury bonds, notes, bills, etc. and
concerned that the cost of the commodity might change before either buying or selling it in the cash market.
Hedging
The practice of offsetting the
price risk inherent in any cash market position by taking an equal but opposite position in the futures
market.
High
The highest price for a particular
futures contract over a specified time period.
Holder
The purchaser of either a call or
put option.
Horizontal Spread
The purchase of either
a call or put option and the simultaneous sale of the same type of option with typically the same strike
price but with a different expiration month. Also referred to as a calendar spread.
LETTER I
In the Money Option
An option with
intrinsic value. A call option is in-the-money if its strike price is below the current price of the
underlying futures contract. A put option is in-the-money if its strike price is above the current price of
the underlying futures contract. See Intrinsic Value.
Initial Margin
The amount a futures
market participant must deposit into a margin account at the time an order is placed to buy or sell a
futures contract. Also called Initial Performance Bond. See Margin.
Interbank Rates
The foreign exchange
rates at which large international banks quote other large international banks. Because of the size of such
transactions and creditworthiness of the counterparties, such bid/ask spreads are typically very tight.
Intercommodity Spread
The purchase of a
given delivery month of one futures market and the simultaneous sale of the same delivery month of a
different, but related, futures market.
Interdelivery Spread
The purchase of one
delivery month of a given futures contract and simultaneous sale of another delivery month of the same
commodity on the same exchange. Also referred to as an intramarket or calendar spread.
Interest Arbitrage
The operation wherein
foreign debt instruments are purchased to profit from the higher interest rate in the foreign country over
the home country. The operation is profitable only when the forward rate on the foreign currency is selling
at a discount less than the premium on the interest rate. See Interest Rate Parity.
Interest Rate Parity
The formal theory of
interest rate parity holds that under normal conditions the forward premium or discount on a currency in
terms of another is directly related to the interest differential between the two countries. This theory
holds only when there are unrestricted flows of international short-term capital. In reality, numerous
economic and legal obstacles restrict the movement, so that actual parity is rare. See Interest Arbitrage.
Intermarket Spread
The sale of a given
delivery month of a futures contract on one exchange and the simultaneous purchase of the same delivery
month and futures contract on another exchange.
Intermediate Holding Period
A time period
for holding trades three months to a year in duration until liquidation.
Intermediate Term Time Horizon
An
intermediate investment time horizon is a period of three to ten years.
Intrinsic Value
The amount by which an
option is in-the-money. See In-the-Money Option.
Introducing Broker
AKA: IB Firm or an
individual that solicits and accepts futures orders from customers but does not accept money, securities, or
property from the customer. An IB must be registered with the CFTC.
Inverted Market
A futures market in which
the nearer months are selling at premiums to the more distant months. Also known as backwardation.
Invisible Supply
Uncounted stocks of a
commodity in the hands of wholesalers, manufacturers, and producers that cannot be identified accurately;
stocks outside commercial channels but theoretically available to the market.
LETTER L
Lagging Indicators
Market indicators
showing the general direction of the economy and confirming or denying the trend implied by the leading
indicators. Also referred to as concurrent indicators.
Last
The most recent price at which a
particular futures contract traded in the marketplace.
Last Trading Day
The final day on which
trading may occur in a given futures or options contract.
Leading Indicators
Market indicators that
signal the state of the economy for the coming months, including average manufacturing workweek, initial
claims for unemployment insurance, orders for consumer goods and material, percentage of companies reporting
slower deliveries, change in manufacturers’ unfilled orders for durable goods, plant and equipment orders,
new building permits, index of consumer expectations, change in material prices, prices of stocks, and
change in money supply.
Leverage
The ability to control large
dollar amounts of a commodity with a comparatively small amount of capital.
Limit
See Limit Order, Position Limit,
Price Limit, Variable Limit.
Limit Move
A price that has advanced or
declined the permissible limit during one trading session, as fixed by the rules of an exchange.
Limit Order
AKA: LMT An order given to a
broker with restrictions upon its execution, such as price and time.
Limit Price
See Maximum Price
Fluctuation.
Limit Up or Down
The maximum price
advance or decline from the previous day’s settlement price permitted during one trading session, as fixed
by the rules of an exchange.
Linkage
The ability to buy (sell)
contracts on one exchange and later sell (buy) them on another exchange.
Liquid
A characteristic of a security or
commodity market with enough units outstanding to allow large transactions without a substantial change in
price.
Liquidate
To take a second futures or
options position opposite to the initial or opening position. To sell (or purchase) futures contracts of the
same delivery month purchased (or sold) during an earlier transaction or make (or take) delivery of the cash
commodity represented by the futures market. See Offset.
Liquidating Value
A money balance figure
calculated by beginning with adjusted total equity, subtracting short option value, and adding long option
value.
Liquidation
Futures Liquidation –
Liquidation is any transaction that offsets or closes out a long or short futures position, it can also be
known as an offset. Often times, liquidation is the act of selling off your futures position in exchange for
cash. Once you have liquidated you positions for a cash exchange, that cash will then go into your account
where you may decide to purchase other contracts or withdraw for personal use. Futures liquidation is
different than the more commonly known business liquidation, where a company sells off all assets for a
variety of reasons in order to become solvent.
Liquidity
AKA: Liquid Market A market is
liquid when it has a high level of trading activity, allowing buying and selling with minimum price
disturbance.
Loan Rate
The amount lent per unit of a
commodity to farmers by the U.S. Government.
Local
A member of an exchange who trades
for his own account or fills orders for customers.
Long
One who has bought futures contracts
or owns a cash commodity. Opposite of Short.
Long Hedge
The purchase of a futures
contract in anticipation of an actual purchase in the cash market. Used by processors or exporters as
protection against an advance in the cash price. See hedge, short hedge.
Long Option Value
A long option value is
the current marketplace value of all long options in a trading account. Options marked to the last reported
price. Market movement may cause bids and offers to be away from the last reported price. Essentially, a
long option value is calculating how much cash would flow into the client’s account if the option were
hypothetically offset at the current market value. This is another tool traders use to figure out where they
stand in the marketplace and how their transactions are currently fairing. However, the long option value is
a fluid number, it changes as the market changes, so once again, it is not the “end all be all” number.
Long Term Holding Period
A time period
for holding trades a year or more in duration until liquidation.
Long Term Time Horizon
A long term
investment time horizon is a period longer than 10 years.
Long the Basis
The purchase of a cash
commodity and the sale of futures against unsold inventory to provide protection against a price decline in
the cash market.
Lot
A unit of trading. In the futures
market, one lot refers to one futures or options contract.
Low
The lowest price of a specified time
period for a particular futures contract.
LETTER M
Maintenance Margin
A sum usually smaller
than, but part of, the original margin (security deposit) that must be maintained on deposit at all times.
If your account falls below the maintenance margin requirement, you will receive a margin call. If you wish
to continue to hold the position, you will be required to restore your account to the full initial margin
level (not to the maintenance margin level). See Margin.
Managed Account
See Discretionary
Account.
Managed Futures
Represents an asset class
composed of commodity trading advisors who manage client assets on a discretionary basis, using global
futures markets as an investment medium.
Margin
A cash amount of funds that a
customer must deposit with the broker for each contract as a sign of his good faith in fulfilling the
contract terms.
Margin Call
A call from a broker or firm
to a customer, to bring margin deposits up to a required minimum level. Exchange rules state that margin
calls must be satisfied by bringing your account equity back to the Initial Margin level. Failure to meet a
margin call immediately may result in some or all of the trader’s positions being liquidated by the firm
without prior notification.
Mark to Market
The daily adjustment of
margin accounts to reflect profits and losses based on that day’s price changes in each market.
Market Maker
A dealer who regularly
quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
Market Order
AKA: MKT An order to buy or
sell a specified commodity, including quantity and delivery month at the best possible price available, as
soon as possible.
Market Reporter
A person employed by the
exchange and located in or near the trading pit, who records prices as they occur during trading.
Market if Touched
AKA: MIT A price order
that automatically becomes a market order if the price is reached.
Market on Close
AKA: MOC An order to buy
or sell at the end of the trading session at a price within the closing range of prices.
Maturity
U.S. Treasury Bills reach their
face value on the maturity date. T-Bills are issued at a discount to face value and gradually increase in
value until reaching the full face value on the maturity date.
Maximum Price Fluctuation
The maximum
amount the contract price can change up or down during one trading session, as fixed by exchange rules.
Minimum Price Fluctuation
Minimum price
fluctuation are the smallest increment of price movement possible in trading a given contract, this can also
be referred to as a tick. When a security is traded on an exchange, the movement is measured in ticks. There
are three different types of tick, plus, minus, and zero. A plus tick is when the price of the security is
higher than the price it was bought at, a minus tick is when the price of a security is lower than what it
was bought at, and a zero tick is when the price is the same. Ticks fluctuate throughout the entire trading
day, and often don’t stay at the exact same number for long, so it’s important to stay updated and keep
watching price movements of your purchased contracts.
Moving Average Charts
A statistical price
analysis method of recognizing different price trends. A moving average is calculated by adding the prices
for a predetermined number of days and then dividing by the number of days.
Municipal Bonds
Debt securities issued by
state and local governments, and special districts and counties.
LETTER N
Naked Option
See Uncovered Option.
Narrow Based Stock Index
Broad-based
stock indices, such as the S&P 500, are defined as a basket of securities where the weight of any single
constituent cannot be greater than 30% and the weight of the five largest components cannot exceed 60% of
the index. All other indices are said to be narrow-based and are regulated identically to single stock
futures.
National Futures Association
AKA: NFA
Authorized by Congress in 1974 and designated by the CFTC in 1982 as a "registered futures association," NFA
is the industrywide self-regulatory organization of the futures industry. The primary responsibilities of
the NFA are to enforce ethical standards and customer protection rules, screen futures professionals for
membership, audit and monitor professionals for financial and general compliance rules, and provide for
arbitration of futures-related disputes.
Nearby
The nearest active trading month
of a futures or options on futures contract. Also referred to as "lead month."
Net Asset Value
The value of each unit of
participation in a commodity pool. Basically, it is a calculation of assets minus liabilities plus or minus
the value of open positions when marked to the market, divided by the total number of outstanding units.
Net Liquidating Value
Also known as Net
Liquidation Value, is the current value of all holdings in your portfolio. Your net liquidation value
reflects how much the contents of your portfolio would be worth if you were to liquidate everything at the
current market price. Net liquidating value can be calculated by adding your total cash, plus your market
value in longs, minus your market value in shorts. The sum of that equation will provide you with your net
liquidating value.
Net Options Value
Net options value is
the credit or debit value of all options positions combined, marketed-to-the-marketer. For example, when a
trader purchases an options contract, they are given a net options value credit, which reflects the value of
their options contract. The trader can then use that credit towards other debits like initial margin
requirements or towards the debit of other options contracts. The NOV really helps give traders more
flexibility and gives traders more options when purchasing options positions.
Nominal Price
Price quotation on futures
for a period in which no actual trading took place.
Not Held
An order submitted to a
brokerage firm with the understanding that it will use its best efforts to execute the order according to
the customer’s instructions, but the broker may not be held responsible or liable for any lost profits,
trading losses, or damages resulting from the manner in which the order is handled.
Notice Day
A day on which notices of
intent to deliver pertaining to a specified delivery month may be issued.
LETTER O
OPEC
AKA: Organization of Petroleum
Exporting Countries This organization emerged as the major petroleum pricing power in 1973, when the
ownership of oil production in the Middle East transferred from the operating companies to the governments
of the producing countries or to their national oil. Members are: Algeria, Indonesia, Iran, Iraq, Kuwait,
Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
Offer
An indication of willingness to
sell a futures contract at a given price. Also called "ask," it is the opposite of bid.
Offset
Taking a second futures or options
position opposite to the initial or opening position. This means selling, if one has bought, or buying, if
one has sold, a futures or option on a futures contract. See Liquidate, Evening Up.
Omnibus Account
An account carried by one
Futures Commission Merchant with another Futures Commission Merchant in which the transactions of two or
more persons are combined and carried in the name of the originating broker—rather than being designated
separately.
One Cancels Other
AKA: OCO An order that
stipulates that if one part of the order is executed, then the other part is automatically canceled.
Open
The period at the beginning of the
trading session officially designated by the exchange, during which all transactions are considered made "at
the open."
Open Interest
The total number of futures
or options on futures contracts that have not yet been offset or fulfilled by delivery.
Open Market Operation
The buying and
selling of government securities Treasury bills, notes, and bonds by the Federal Reserve.
Open Order
An order to a broker that is
good until it is canceled or executed.
Open Outcry
A method of public auction
for making bids and offers in the trading pits of futures exchanges.
Open Trade Equity
Open Trade Equity is
the total gain or loss on all open futures positions. What OTE does is measure the difference between the
fill price of all open contracts against the last traded price of all open contracts. OTE is especially
valuable to those who consider themselves margin investors because the fluctuations in price directly affect
the total value of their account. This is a good tool to use to measure how successful your trades are and
what moves you may need to make in the futures.
Opening Price
The price (or range)
recorded during the period designated by the exchange at the official opening.
Opening Range
The range of prices at
which the first bids and offers were made or first transactions were completed.
Option
A contract giving the holder the
right or the “option” (not the obligation) to buy (call option) or sell (put option) a futures contract in a
given commodity at a specified price at any time between now and the expiration of the option contract.
LETTER P
Par
The face value of a security.
Parity
An option is said to be trading at
parity if the premium at which it is currently trading in the market is exactly equal to its intrinsic
value. In other words, time value is zero.
Partial Fill
When a trader has placed an
order to buy or sell more than 1-lot, it is always possible that the order may be only partially filled.
Performance Bond
Funds that must be
deposited by a customer with a broker, by a broker with a clearing member or by a clearing member with the
clearinghouse to initiate or maintain a market position. The performance bond helps to ensure the financial
integrity of brokers, clearing members and the exchange. Also known as Margin.
Performance Bond Call
AKA: Margin Call A
demand for additional funds because of adverse price movement.
Pips
Slang forex reference to digits
added to or subtracted from the fourth decimal place in a quoted currency rate, such as 0.0001. See Points.
Pit
The area on an exchange trading floor
where futures and options on futures contracts are bought and sold.
Point and Figure Charts
Charts that show
price changes of a minimum amount regardless of the time period involved.
Points
Predominately a forex term used to
describe digits added to or subtracted from the fourth decimal place in a quoted currency rate, such as
0.0001.
Pool
See Commodity Pool.
Position
A commitment, either long or
short, in the market. A buyer of a futures contract is said to have a long position and, conversely, a
seller of futures contracts is said to have a short position.
Position Day
The first day in the process
of making or taking delivery of the actual commodity on a futures contract. The clearing firm representing
the seller notifies the clearinghouse that its short customers want to deliver on a futures contract.
Position Limit
The maximum number of
speculative futures contracts one can hold as determined by the CFTC and/or the exchange where the contract
is traded.
Position Trader
A trader who either buys
or sells contracts and holds them for an extended period of time.
Premium
Price Change
A revision to a previously
reported fill, usually due to the resolution of an out trade.
Price Discovery
The process of
determining the price of a commodity by trading conducted in open outcry at an exchange.
Price Limit
The maximum advance or
decline, from the previous day’s settlement price, permitted for a futures contract in one trading session.
See Variable Limit, Maximum Price Fluctuation.
Price Limit Order
An order that specifies
the highest price at which a bidder will pay for a contract, or the lowest price a seller will sell a
contract.
Primary Dealer
A designation given by the
Federal Reserve System to commercial banks or broker/dealers who meet specific criteria. Among the criteria
are capital requirements and meaningful participation in the Treasury auctions.
Primary Market
Market of new issues of
securities.
Prime Rate
Interest rate charged by major
banks to their most creditworthy customers.
Producer Price Index
AKA: PPI An index
that shows the cost of resources needed to produce manufactured goods during the previous month.
Pulpit
A raised structure adjacent to, or
in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange,
record price changes as they occur in the trading pit.
Purchase and Sale Statement
AKA: P&S A
statement sent by a Futures Commission Merchant to a customer when a futures or options position has been
liquidated or offset. The statement shows the number of contracts bought or sold, the prices at which the
contracts were bought or sold, the gross profit or loss, the commission charges and the net profit or loss
on the transaction. It is sometimes combined with a Confirmation Statement.
Purchasing Hedge
AKA: Long Hedge Buying
futures contracts to protect against a possible price increase of cash commodities that will be purchased in
the future. At the time the cash commodities are bought, the open futures position is closed by selling an
equal number and type of futures.
Purchasing Power
Total Trade Equity minus
Initial Margin. Your purchasing power represents funds available to you to establish new positions. Your
purchasing power changes throughout the day as your total trade equity and margins change. If you have
options positions, margin amounts are based on a calculation of total portfolio risk.
Put
An option giving the right to sell a
commodity or security at a predetermined price within a specified period of time.
Pyramiding
Using profits on a previously
established position as margin for adding to that position.
LETTER R
Quotation
The actual price or the bid or
ask price of either cash commodities or futures or options contracts at a particular time.
Rally
An upward movement of prices
following a decline; the opposite of a reaction.
Range
The difference between the high and
low price of a commodity during a given trading session, week, month, year, etc.
Rate
A forex term used to describe the
price of one currency in terms of another, typically used for dealing purposes.
Reaction
A decline in prices following an
advance. The opposite of rally.
Real Time Quotes
Market quotations that
are not delayed.
Reciprocal of European Terms
One method
of quoting exchange rates, which measures the U.S. dollar value of one foreign currency unit (i.e., U.S.
dollars per foreign units). See European Terms.
Recovery
Usually describes a price
advance following a decline.
Registered Representative
A person
employed by, and soliciting business for, a commission house or Futures Commission Merchant.
Regular Trading Hours
The standard,
morning/afternoon trading sessions at the U.S. markets.
Replace Order
To modify an existing
pending or working order.
Reportable Positions
The number of open
contracts specified by the CFTC when a firm or individual must begin reporting total positions by delivery
month to the authorized exchange and/or the CFTC.
Repurchase Agreements
AKA: Repo An
agreement between a seller and a buyer, usually in U.S. government securities, in which the seller agrees to
buy back the security at a later date.
Resistance
In technical trading, a price
area where new selling will emerge to dampen a continued market rise. See Support.
Retender
In specific circumstances, some
contract markets permit holders of futures contracts who have received a delivery notice through the
clearinghouse to sell a futures contract and return the notice to the clearinghouse to be reissued to
another long; others permit transfer of notices to another buyer. In either case, the trader is said to have
retendered the delivery notice.
Retracement
A reversal within a major
price trend.
Reversal
A change of direction in market
price.
Reverse Crush Spread
The sale of soybean
futures and the simultaneous purchase of soybean oil and meal futures. See Crush Spread.
Rollover
Process whereby the settlement
of a forex deal is rolled forward to another date. The cost of this process is based on the interest rate
differential of the two currencies.
Round Turn
Procedure by which a long or
short position is offset by an opposite transaction or by accepting or making delivery of the actual
financial instrument or physical commodity.
Round Turn per Million
Round turn per
million represents the number of trades (in and out) that a CTA program trades on an annual basis, based on
a $1 million account. Round turn per million is a statistic often used by managed futures advisors. A round
turn accounts for one single completed trade, which includes a buy and sell. Once you have your round turn
per million number (number of round turns completed per million dollars) you can multiply that by two to
achieve the total number of contracts trader per million dollars. Remember, a round turn is both a buy and
sell counted as one, so to get the total number of contracts traded you have to count a buy or sell as its
own entity.
Runners
Messengers who rush orders
received by phone clerks to brokers for execution in the pit.
LETTER S
Scalp
To trade for small gains. Scalping
normally involves establishing and liquidating a position quickly, often within just a few minutes.
Scalper
A local trader in the pit who
trades for small, short-term profits during the course of a trading session—rarely carrying a position
overnight.
Secondary Market
Market where previously
issued securities are bought and sold.
Securities on Deposit
Treasury bills and
other government interest-bearing coupons that you may have in your trading account.
Security Deposit
The amount of funds that
must be deposited by a customer with his broker for each futures contract as a guarantee of fulfillment of
the contract. It is not considered part payment of purchase. Used interchangeably with margin.
Security Deposit Call
A demand for
additional cash funds because of adverse price movement. See Maintenance Margin.
Security Futures
See Single Stock
Futures.
Segregated Account
A special account used
to hold and separate customers’ assets from those of the broker or firm.
Self Regulatory Organization
AKA: SRO
Self-regulatory organizations (i.e., the futures exchanges and National Futures Association) enforce minimum
financial and sales practice requirements for their members. See Designated Self-Regulatory Organization.
Sell Order
AKA: Sell An offer. This
transaction type indicates to sell or to go short. Opposite of buy or go long.
Sell Spread
AKA: Option Sell Spread The
transaction type you choose to indicate an option sell spread.
Selling Hedge
AKA: Short Hedge Selling
futures contracts to protect against possible declining prices of commodities that will be sold in the
future. At the time the cash commodities are sold, the open futures position is closed by purchasing an
equal number and type of futures contracts as those that were initially sold. See Hedging.
Settlement Price
The settlement price is
the “average” price based on the last couple of minutes of a “pit” session. Electronic markets do not have a
settlement price per se. The settlement price of an electronic market is based on the “pit” close. For
example: EMINI SP closes at 4:00 pm Chicago time. The Pit session concludes at 3:15 pm Chicago time. The
exchange will calculate the closing price based on the last couple of minutes of trading before the pit
close. The customer’s margin responsibility and cash value in the account will be based on that 3:15
settlement not the last price traded electronically at 4:00 pm. The open of the next session will start with
the settlement price.
Short Option Value
A short option value
is the current marketplace value of all short options in a trading account. Options marked to the last
reported price. Market movement may cause bids and offers to be away from the last reported price.
Essentially, a short option value is calculating how much cash would flow into the client’s account if the
option were hypothetically offset at the current market value. This is another tool traders use to figure
out where they stand in the marketplace and how their transactions are currently fairing. However, the long
option value is a fluid number, it changes as the market changes, so once again, it is not the “end all be
all” number.
Short Selling
Selling a contract with the
idea of buying it back at a later date.
Short Squeeze
A situation in which a lack
of supplies tends to force those who have sold to cover their positions by offsetting them in the futures
market rather than by delivery.
Short Term Holding Period
A time period
for holding trades seconds to a three month duration until liquidation.
Short Term Time Horizon
A short term
investment time horizon is a period of less than 3 years.
Simulated Trading
The process of buying
and selling without actually entering the market or risking any real funds.
Single Stock Futures
Futures contracts on
individual securities. See Security Futures.
Special Offset
When a long position and a
short position are specially matched and offset according to specific instructions from a customer, rather
than according to standard industry offset practices.
Speculator
A market participant who tries
to profit from buying and selling futures and options contracts by anticipating future price movements.
Speculators assume market price risk and add liquidity and capital to the futures markets.
Split Fill
A split fill is an order
consisting of more than one lot, where contracts are filled at different prices, this is also known as order
splitting. This is most commonly done with larger orders so that the order in question can be filled
automatically.
Spot
Market of immediate delivery of the
product and immediate payment. Also refers to the nearest delivery month on a futures contract.
Spot Month
See Nearby Delivery Month.
Spot Price
In futures markets, this term
usually refers to a cash market price for a physical commodity that is available for immediate delivery.
Where forex is concerned, the term generally refers to the current market price.
Spread
The price difference between two
related markets or commodities. Also sometimes called a Straddle.
Spreading
The simultaneous buying and
selling of two related markets or commodities in the expectation that a profit will be made when the
position is offset.
Steer Corn Ratio
The relationship of
cattle prices to feeding costs. It is measured by dividing the price of cattle ($/hundredweight) by the
price of corn ($/bushel). When corn prices are high relative to cattle prices, fewer units of corn equal the
dollar value of 100 pounds of cattle. Conversely, when corn prices are low in relation to cattle prices,
more units of corn are required to equal the value of 100 pounds of beef. See Feed Ratio.
Stock Index
An indicator used to measure
and report value changes in a selected group of stocks. How a particular stock index tracks the market
depends on its composition, the sampling of stocks, the weighting of individual stocks, and the method of
averaging used to establish an index.
Stock Market
A market in which shares of
stock are bought and sold.
Stop
An order that becomes a market order
when the futures contract reaches a particular price level. A sell stop is placed below the market, a buy
stop is placed above the market.
Stop Close Only
A time sensitive
variation of a stop order. Order is only worked as a stop during the closing range.
Stop Limit
An order that immediately
becomes a market order when the "stop" level is reached. Its purpose is to limit losses. It may be either by
buying order or selling order.
Stop Open Only
A time sensitive variation
of a stop order. Order is only worked as a stop during the opening range.
Stop with Limit
A variation of a stop
order. A stop with limit order to buy becomes a limit order when the futures contract trades (or is bid) at
or above the stop price. A stop with limit order to sell becomes a limit order when the futures contract
trades (or is offered) at or below the stop price.
Straddle
A position consisting of a long
(short) call and a long (short) put, where both options have the same underlying expiration date and strike
price.
Strangle
A position consisting of a long
(short) call and a long (short) put, where both options have the same underlying and expiration date, but
different strike prices. Typically, both options are out-of-the-money.
Streaming Quotes
Market quotations that
continuously and automatically update on the trader’s screen.
Strike Price
The price at which the
holder (buyer) may purchase or sell the underlying futures contract upon the exercise of an option.
Support
In technical analysis, a price
area where new buying is likely to come in and stem any decline. See Resistance.
Swap
An interest rate swap is an
agreement between two parties to exchange interest rate payments on a fixed (notional) amount of debt. One
party agrees to pay a fixed interest rate in exchange for receiving a variable (floating) rate on the swap’s
notional amount.
Switching
Liquidating an existing
position and simultaneously reinstating that position in another contract month of the same commodity or
currency.
Systematic
Commodity Trading Advisors
that trade using a systematic approach define trade goals, risk controls, and rules to find and execute
trades in a methodical fashion. Many systematic CTAs employ computer models based on technical analysis of
market data or fundamental economic data, with minimal manager intervention.
LETTER T
Technical Analysis
An approach to
analysis of futures markets that examines patterns of price change, rates of change, and changes in volume
of trading, open interest and other statistical indicators. See Charting.
Technical Rally
A price movement
attributed to conditions developing from within the futures market itself. These conditions include changes
in open interest, volume and extent of recent price movement.
Tick
The smallest allowable increment of
price movement for a futures contract. Also referred to as Minimum Price Fluctuation.
Time Limit Order
A customer order that
designates the time during which it can be executed.
Time Stamped
Part of the order-routing
process in which the time of day is stamped on an order.
Time Value
The amount of money option
buyers are willing to pay, above the intrinsic value, for an option in anticipation that, over time, a
change in the underlying futures price will cause the option to increase in value. In general, an option
premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the
option’s intrinsic value can be considered time and volatility value. Also referred to as extrinsic value.
Time and Sales
The registered times of
prices traded and bid and offers on a given market.
To Arrive Contract
Hedge To Arrive
Contract – A transaction providing for subsequent delivery within a stipulated time limit of a specific
grade of a commodity. A hedge to arrive contract is often associated with commodities in the grain market of
futures trading. Essentially a to arrive contract is an agreement to lock in only the futures price portion
of the contract.
Too Late to Cancel
When a trader attempts
to modify or replace an order that has already been executed but not yet reported as having been filled, the
order is said to be too late to cancel.
Total Equity
Total equity is a money
balance figure calculated by adding futures open trade equity, also known as OTE, to your total cash
balance. This can be useful for traders to know how much money they are working with and help them develop
and execute their trading strategy going forward.
Total Return
The total percentage return
of an investment over a specified period, calculated by expressing the difference between the investment’s
initial price and final price as a percentage of the initial price.
Trade Balance
The difference between the
value of a nation’s imports and exports of merchandise.
Trade Order Processing System
TOPS is an
electronic order entry, routing, and fill reporting system that expedites the flow of orders from a firm’s
desk or directly from its customers to its exchange floor operations. It is jointly owned by the CME and the
CBOT.
Trailing Stop Order
This special order
type allows the trader to profit from favorable movement in the market while having the protection of a Stop
order.
Trend
The general direction, either
upward or downward, in which prices have been moving.
Trendline
In charting, a line drawn
across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the
trendline is called "bullish;" if down, it is called "bearish."
Two Way Price
When both a bid and offer
forex rate is quoted by the dealer.
LETTER U
US Treasury Bill
A short-term US
government debt instrument with an original maturity of one year or less. Bills are sold at a discount from
par with the interest earned being the difference between the face value received at maturity and the price
paid.
US Treasury Bond
Government-debt security
with a coupon and original maturity of more than 10 years. Interest is paid semiannually.
US Treasury Note
Government-debt security
with a coupon and original maturity of one to 10 years.
Unable
A working order that has not yet
been able to be executed.
Uncovered Option
A short call or put
option position that is not covered by the purchase or sale of the underlying futures contract or physical
commodity. Also referred to as a Naked Option.
Underlying Futures Contract
The specific
futures contract that the option conveys the right to buy (in the case of a call) or sell (in the case of a
put).
LETTER V
Variable Limit
A price system that allows
for larger than normal allowable price movements under certain conditions. In periods of extreme volatility,
some exchanges permit trading at price levels that exceed regular daily price limits.
Variation Margin
Additional margin
required to be deposited by a clearing member firm to the clearinghouse during periods of great market
volatility, or in the case of high-risk accounts.
Vertical Spread
Buying and selling puts
or calls of the same expiration month but different strike prices.
Volatility
A measurement of the change in
price over a given time period.
Volume
The number of transactions in a
futures or options on futures contract made during a specified period of time.
LETTER W
Warehouse Receipt
A document guaranteeing
the existence and availability of a given quantity and quality of a commodity in storage; commonly used as
the instrument of transfer of ownership in both cash and futures transactions.
Web OE
Web Order Entry is a
firewall-friendly order entry module, provided by RJO Futures, which connects users with access to the
global futures marketplace. Using a series of dynamic Web pages, this powerful application enables its users
to place, change, and monitor order flow between a remote location and the financial markets. And if you
already have a quote and charting package, you can use Web OE in addition, for a complete order-routing and
execution experience.
Whipsaw
Slang for a condition in a highly
volatile market where a sharp price movement in one direction is quickly followed by a sharp reversal and
movement in the opposite direction.
Williams %R
Larry Williams’ Percentage
Range indicator measures the current momentum of price over a user defined period. Also known as the “%R”,
this momentum indicator oscillates between 0 and -100 as it compares the current closing price with respect
to the highest high and lowest low over the range. A value closer to zero signifies bullish momentum as
price is in the top of the range over the look back period. When the indicator is closer to -100 it means
price as the bottom of the range meaning bearish momentum is strong. There are many ways to use the %R, with
the most well-known uses being: 1) to identify overbought and oversold markets for those traders seeking to
pick tops and bottoms in price, 2) identify strong momentum markets, 3) giving trade signals when the
indicator passes over the mid-line (-50) having been in either in the overbought or oversold territory and,
one lesser known use, 4) identifying market divergence.
Writer
An individual who sells an option.
See Grantor.
LETTER Y
Yield
A measure of the annual return on
an investment.
Yield Curve
A chart in which the yield
level is plotted on the vertical axis and the term to maturity of debt instruments of similar
creditworthiness is plotted on the horizontal axis. The yield curve is positive when long-term rates are
higher than short-term rates.
Yield to Maturity
The rate of return an
investor receives if a fixed-income security is held to maturity.