Glossary of Futures Trading
A LAYMAN'S GUIDE TO THE LANGUAGE
OF THE FUTURES
Abandon: The act of an option holder in electing not to exercise or
offset an option.
Accommodation Trading: Non-competitive trading entered into by a
trader, usually to assist another with illegal trades.
Actuals: The physical or cash commodity, as distinguished from a
commodity futures contract. Also see Cash and Spot
Aggregation: The principle under which all futures positions owned or
controlled by one trader (or group of traders acting in concert) are combined
to determine reporting status and compliance with speculative limits.
Allowances: The discounts (premiums) allowed for grades or locations
of a commodity lower (higher) than the par (or basis) grade or location
specified in the futures contract. See Differentials.
Approved Delivery Facility: Any bank, stockyard, mill, storehouse,
plant, elevator or other depository that is authorized by an exchange for the
delivery of commodities tendered on futures contracts.
Arbitrage: Simultaneous purchase of cash commodities or futures in
one market against the sale of cash commodities or futures in the same or a
different market to profit from a discrepancy in prices. Also includes some
aspects of hedging. See Spread, Switch.
Asian Option: An option whose payoff depends on the average price of
the underlying asset during some portion of the life of the option.
Assignable Contract: One which allows the holder to convey his rights
to a third party. Exchange-traded contracts are not assignable.
Associated Person: A person associated with any futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, or leverage transaction merchant as a partner, officer, employee,
consultant, or agent. Also, any person occupying a similar status or performing
similar functions, in any capacity that involves: (a) the solicitation or
acceptance of customers' orders, discretionary accounts, or participation in a
commodity pool (other than in a clerical capacity); or (b) the supervision of
any person or persons so engaged.
At-the-Market: An order to buy or sell a futures contract at whatever
price is obtainable when the order reaches the trading floor. Also called a
At-the-Money: When an option's exercise price is the same as the
current trading price of the underlying commodity, the option is
Audit Trail: The record of trading information identifying, for
example, the brokers participating in each transaction, the firms clearing the
trade, the terms and time of the trade, and, ultimately, and when applicable,
the customers involved.
Back Months: Those futures delivery months with expiration or
delivery dates furthest into the future; futures delivery months other than the
spot or nearby delivery month.
Back pricing: Fixing the price of a commodity for which the commitment
to purchase has been made in advance. The buyer can fix the price relative to
any monthly or periodic delivery using the futures markets.
Backwardation: Market situation in which futures prices are
progressively lower in the distant delivery months. For instance, if the gold
quotation for February is $160.00 per ounce and that for June is $155.00 per
ounce, the backwardation for four months against January is $5.00 per ounce.
(Backwardation is the opposite of contango). See Inverted
Banker's Acceptance: A draft or bill of exchange accepted by a bank
where the accepting institution guarantees payment. Used extensively in foreign
Basis: The difference between the spot or cash price of a commodity
and the price of the nearest futures contract for the same or a related
commodity. Basis is usually computed in relation to the futures contract next
to expire and may reflect different time periods, product forms, qualities, or
Basis Grade: The grade of a commodity used as the standard or par
grade of a futures contract.
Basis Point: The measurement of a change in the yield of a debt
security. One basis point equals 1/100 of one percent.
Basis Quote: Offer or sale of a cash commodity in terms of the
difference above or below a futures price (e.g., 10 cents over December corn).
Basis Risk: The risk associated with an unexpected widening or
narrowing of basis between the time a hedge position is established and the
time that it is lifted.
Bear: One who expects a decline in prices. The opposite of a
"bull." A news item is considered bearish if it is expected to result
in lower prices.
Bear Market: A market in which prices are declining.
Bear Spread: The simultaneous purchase and sale of two futures
contracts in the same or related commodities with the intention of profiting
from a decline in prices but at the same time limiting the potential loss if
this expectation does not materialize. In agricultural products, this is
accomplished by selling a nearby delivery and buying a deferred delivery.
Bear Vertical Spread: A strategy employed when an investor expects a
decline in a commodity price but at the same time seeks to limit the potential
loss if this expectation is not realized. This spread requires the simultaneous
purchase and sale of options of the same class and expiration date but
different strike prices. For example, if call options are spread, the purchased
option must have a higher exercise price than option that is sold.
Beta (Beta Coefficient): A measure of the variability of rate of
return or value of a stock or portfolio compared to that of the overall market.
Bid: An offer to buy a specific quantity of a commodity at a stated
Blackboard Trading: The practice of selling commodities from a
blackboard on a wall of a commodity exchange.
Black-Scholes Model: An option pricing formula initially developed by
F. Black and M. Scholes for securities options and later refined by Black for
options on futures.
Board Broker System: A system of trading in which an individual
member of an exchange (or a nominee of the member) is designated as a Board
Broker for a particular commodity with the responsibility of executing orders
left with him by other members on the floor, providing price quotations, and
maintaining orderliness in the trading crowd. A Board Broker may not trade for
his own account or the account of an affiliated organization. Also See
Free Crowd Systems and Specialist System.
Board Order: See Market-if-Touched Order.
Board of Trade: Any exchange or association, whether incorporated or
unincorporated, of persons who are engaged in the business of buying or selling
any commodity or receiving the same for sale on consignment.
Boiler Room: An enterprise which often is operated out of
inexpensive, low-rent quarters (hence the term "boiler room") that
uses high pressure sales tactics (generally over the telephone) and possibly
false or misleading information to solicit generally unsophisticated investors.
Booking the Basis: A forward pricing sales arrangement in which the
cash price is determined either by the buyer or seller within a specified time.
At that time, the previously-agreed basis is applied to the then-current
Book Transfer: A series of accounting or bookkeeping entries used to
settle a series of cash market transactions.
Box Transaction: An option position in which the holder establishes a
long call and a short put at one strike price and a short call and a long put
at another strike price, all of which are in the same contract month in the
Break: A rapid and sharp price decline.
Broker: A person paid a fee or commission for executing buy or sell
orders for a customer. In commodity futures trading, the term may refer to: (1)
Floor Broker--a person who actually executes orders on the trading floor
of an exchange; (2) Account Executive, Associated Person, registered
Commodity Representative or Customer's Man--the person who deals with
customers in the offices of futures commission merchants; or (3) the Futures
Broker Association: Two or more exchange members who (1) share
responsibility for executing customer orders; (2) have access to each other's
unfilled customer orders as a result of common employment or other types of
relationships; or (3) share profits or losses associated with their brokerage
or trading activity.
Bucketing: Directly or indirectly taking the opposite side of a
customer's order into a broker's own account or into an account in which a
broker has an interest, without open and competitive execution of the order on
Bucket Shop: A brokerage enterprise which "books" (i.e.,
takes the opposite side of) a customer's order without actually having it
executed on an exchange.
Bulge: A rapid advance in prices.
Bull: One who expects a rise in prices. The opposite of
"bear." A news item is considered bullish if it portends higher
Bullion: Bars or ingots of precious metals, usually cast in
Bull Market: A market in which prices are rising.
Bull Spread: The simultaneous purchase and sale of two futures
contracts in the same or related commodities with the intention of profiting
from a rise in prices but at the same time limiting the potential loss if this
expectation is wrong. In agricultural commodities, this is accomplished by
buying the nearby delivery and selling the deferred.
Bull Vertical Spread: A strategy used when an investor expects that
the price of a commodity will go up but at the same time seeks to limit the
potential loss should this judgment be in error. This strategy involves the
simultaneous purchase and sale of options of the same class and expiration date
but different strike prices. For example, if call options are spread, the
purchased option must have a lower exercise or strike price than the sold
Buoyant: A market in which prices have a tendency to rise easily with
a considerable show of strength.
Butterfly Spread: A three-legged spread in futures or options. In the
option spread, the options have the same expiration date but differ in strike
prices. For example, a butterfly spread in soybean call options might consist
of two short calls at a $6.00 strike price, one long call at a $6.50 strike
price, and one long call at a $5.50 strike price.
Buyer: A market participant who takes a long futures position or buys
an option. An option buyer is also called a taker, holder or
Buyer's Call: See Call.
Buyer's Market: A condition of the market in which there is an
abundance of goods available and hence buyers can afford to be selective and
may be able to buy at less than the price that previously prevailed. See
Buying Hedge (or Long Hedge): Hedging transaction in which futures
contracts are bought to protect against possible increases in the cost of
commodities. See Hedging.
Buy (or Sell) On Close: To buy (or sell) at the end of the trading
session within the closing price range.
Buy (or Sell) On Opening: To buy (or sell) at the beginning of a
trading session within the open price range.
C & F: "Cost and Freight" paid to a point of
destination and included in the price quoted. Same as C.A.F.
Call: (1) A period at the opening and the close of some futures
markets in which the price for each futures contract is established by auction;
(2) Buyer's Call generally applies to cotton, also called "call
sale." A purchase of a specified quantity of a specific grade of a
commodity at a fixed number of points above or below a specified delivery month
futures price with the buyer allowed a period of time to fix the price either
by purchasing a future for the account of the seller or telling the seller when
he wishes to fix the price; (3) Seller's Call, also called "call
purchase," is the same as the buyer's call except that the seller has the
right to determine the time to fix the price; (4) option contract giving the
buyer the right but not the obligation to purchase the commodity or to enter
into a long futures position; and (5) the requirement that a financial
instrument be returned to the issuer prior to maturity, with principal and
accrued interest paid off upon return.
Call Cotton: Cotton bought or sold on call. See Call.
Called: Another term for "exercised" when the option is a
call. The writer of a call must deliver the indicated underlying commodity when
the option is exercised or called.
Call Option: A contract that entitles the buyer/taker to buy a fixed
quantity of commodity at a stipulated basis or striking price at any time up to
the expiration of the option. The buyer pays a premium to the seller/grantor
for this contract. A call option is bought with the expectation of a rise in
prices. See Put Option.
Call Rule: An exchange regulation under which an official bid price
for a cash commodity is competitively established at the close of each day's
trading. It holds until the next opening of the exchange.
Capping: Effecting commodity or security transactions shortly prior
to an option's expiration date depressing or preventing a rise in the price of
the commodity or security so that previously written call options will expire
worthless and the premium the writer received will be protected.
Carrying Broker: A member of a commodity exchange, usually a futures
commission merchant, through whom another broker or customer elects to clear
all or part of its trades.
Carrying Charges: Cost of storing a physical commodity or holding a
financial instrument over a period of time. Includes insurance, storage, and
interest on the invested funds as well as other incidental costs. It is a
carrying charge market when there are higher futures prices for each successive
contract maturity. If the carrying charge is adequate to reimburse the holder,
it is called a "full charge." Also see Negative Carry, Positive
Carry and Contango.
Cash Commodity: The physical or actual commodity as distinguished
from the futures contract. Sometimes called Spot Commodity or
Cash Forward Sale: See Forward Contracting.
Cash Market: The market for the cash commodity (as contrasted to a
futures contract), taking the form of: (1) an organized, self-regulated central
market (e.g., a commodity exchange); (2) a decentralized over-the-counter
market; or (3) a local organization, such as a grain elevator or meat
processor, which provides a market for a small region.
Cash Price: The price in the marketplace for actual cash or spot
commodities to be delivered via customary market channels.
Cash Settlement: A method of settling certain futures or option
contracts whereby the seller (or short) pays the buyer (or long)
the cash value of the commodity traded according to a procedure specified in
CCC: See Commodity Credit Corporation.
CD: See Certificate of Deposit.
CEA: See Commodity Exchange Authority.
Certificate of Deposit (CD): A time deposit with a specific maturity
evidenced by a certificate. Large-denomination CDS are typically negotiable.
CFTC: See Commodity Futures Trading Commission.
CFO: Cancel Former Order.
Certificated or Certified Stocks: Stocks of a commodity that have
been inspected and found to be of a quality deliverable against futures
contracts, stored at the delivery points designated as regular or acceptable
for delivery by a commodity exchange. In grain, called "stocks in
deliverable position." See Deliverable Stocks.
Changer: A clearing member of both the Mid-America Commodity Exchange
(MCE) and another futures exchange who, for a fee, will assume the opposite
side of a transaction on the MCE by taking a spread position between the MCE
and another futures exchange which trades an identical, but larger, contract.
Through this service, the changer provides liquidity for the MCE and an
economical mechanism for arbitrage between the two markets.
Charting: The use of graphs and charts in the technical analysis of
futures markets to plot trends of price movements, average movements of price,
volume of trading and open interest. See Technical Analysis.
Chartist: Technical trader who reacts to signals derived from graphs
of price movements.
Cheapest-to-Deliver: Usually refers to the selection of bonds
deliverable against an expiring bond futures contract.
Chooser Option: An option which is transacted in the present but
which at some pre specified future date is chosen to be either a put or a
Churning: Excessive trading of an account by a broker with control of
the account for the purpose of generating commissions while disregarding the
interests of the customer.
Circuit Breakers: A system of trading halts and price limits on
equities and derivative markets designed to provide a cooling-off period during
large, intra day market movements. The first known use of the term circuit
breaker in this context was in the Report of the Presidential
Task Force on Market Mechanisms (January 1988), which recommended that
circuit breakers be adopted following the market break of October 1987.
C.I.F.: Cost, insurance and freight paid to a point of destination
and included in the price quoted.
Class (of options): Options of the same type (i.e., either puts or
calls, but not both) covering the same underlying futures contract or physical
commodity (e.g., a March call with a strike price of 62 and a May call with a
strike price of 58).
Clearing: The procedure through which the clearing house or
association becomes the buyer to each seller of a futures contract, and the
seller to each buyer, and assumes responsibility for protecting buyers and
sellers from financial loss by assuring performance on each contract.
Clearing House: An adjunct to, or division of, a commodity exchange
through which transactions executed on the floor of the exchange are settled.
Also charged with assuring the proper conduct of the exchange's delivery
procedures and the adequate financing of the trading.
Clearing Member: A member of the Clearing House or Association. All
trades of a non-clearing member must be registered and eventually settled
through a clearing member.
Clearing Price: See Settlement Price.
Close, The: The period at the end of the trading session, officially
designated by the exchange, during which all transactions are considered made
"at the close." Also see Call.
Closing-Out: Liquidating an existing long or short futures or option
position with an equal and opposite transaction. Also known as
Closing Price (or Range): The price (or price range) recorded during
trading that takes place in the final moments of a day's activity that is
officially designated as the "close."
Combination: Puts and calls held either long or short with different
strike prices and expirations.
Commercial: An entity involved in the production, processing, or
merchandising of a commodity.
Commercial Grain Stocks: Domestic grain in store in public and
private elevators at important markets and grain afloat in vessels or barges in
lake and seaboard ports.
Commercial Paper: Short-term promissory notes issued in bearer form
by large corporations, with maturities ranging from 5 to 270 days. Since the
notes are unsecured, the commercial papers market generally is dominated by
large corporations with impeccable credit ratings.
Commission: (1) The charge made by a commission house for buying and
selling commodities; (2) the CFTC.
Commitments: See Open Interest.
Commodity Credit Corporation: A government-owned corporation
established in 1933 to assist American agriculture. Major operations include
price support programs, foreign sales, and export credit programs for
Commodity Exchange Authority: A regulatory agency of the U.S.
Department of Agriculture established to administer the Commodity Exchange Act
prior to 1975; the predecessor of the Commodity Futures Trading Commission.
Commodity Exchange Commission: A commission consisting of the
Secretary of Agriculture, Secretary of Commerce, and the Attorney General,
responsible for administering the Commodity Exchange Act prior to 1975.
Commodity Futures Trading Commission (CFTC): The Federal regulatory
agency established by the CFTC Act of 1974 to administer the Commodity Exchange
Commodity-Linked Bond: A bond in which payment to the investor is
dependent on the price level of such commodities as crude oil, gold, or silver
Commodity Option: See Option, Puts and Calls.
Commodity Pool: An investment trust, syndicate or similar form of
enterprise operated for the purpose of trading commodity futures or option
Commodity Pool Operator (CPO): Individuals or firms in businesses
similar to investment trusts or syndicates that solicit or accept funds,
securities or property for the purpose of trading commodity futures contracts
or commodity options.
Commodity Price Index: Index or average, which may be weighted, of
selected commodity prices, intended to be representative of the markets in
general or a specific subset of commodities (for example, grains or livestock).
Commodity Trading Advisor (CTA): Individuals or firms that, for pay,
issue analyses or reports concerning commodities, including the advisability of
trading in commodity futures or options.
Congestion: (1) A market situation in which shorts attempting to
cover their positions are unable to find an adequate supply of contracts
provided by longs willing to liquidate or by new sellers willing to enter the
market, except at sharply higher prices; (2) in technical analysis, a period of
time characterized by repetitious and limited price fluctuations.
Consignment: A shipment made by a producer or dealer to an agent
elsewhere with the understanding that the commodities in question will be cared
for or sold at the highest obtainable price. Title to the merchandise shipped
on consignment rests with the shipper until the goods are disposed of according
Contango: Market situation in which prices in succeeding delivery
months are progressively higher than in the nearest delivery month; the
opposite of "backwardation."
Contract: (1) A term of reference describing a unit of trading for a
commodity future or option; (2) An agreement to buy or sell a specified
commodity, detailing the amount and grade of the product and the date on which
the contract will mature and become deliverable.
Contract Grades: Those grades of a commodity which have been
officially approved by an exchange as deliverable in settlement of a futures
Contract Market: (1) A board of trade or exchange designated by the
Commodity Futures Trading Commission to trade futures or options under the
Commodity Exchange Act; (2) Sometimes the futures contract itself (e.g., corn
is a contract market).
Contract Month: See Delivery Month.
Contract Unit: The actual amount of a commodity represented in a
Controlled Account: Any account for which trading is directed by
someone other than the owner. Also called a Managed Account or a
Convergence: The tendency for prices of physicals and futures to
approach one another, usually during the delivery month. Also called a
"narrowing of the basis."
Conversion: When trading options on futures contracts, a position
created by selling a call option, buying a put option, and buying the
underlying futures contract, where the options have the same strike price and
the same expiration.
Corner: (1) Securing such relative control of a commodity or security
that its price can be manipulated; (2) In the extreme situation, obtaining
contracts requiring the delivery of more commodities or securities than are
available for delivery.
Corn-Hog Ratio: See Feed Ratio.
Cost of Tender: Total of various charges incurred when a commodity is
certified and delivered on a futures contract.
Counter-Trend Trading: In technical analysis, the method by which a
trader takes a position contrary to the current market direction in
anticipation of a change in that direction.
Coupon (Coupon Rate): A fixed dollar amount of interest payable per
annum, stated as a percentage of principal value, usually payable in semiannual
Cover: (1) Purchasing futures to offset a short position. Same as
Short Covering. See Offset, Liquidation; (2) To have
in hand the physical commodity when a short futures or leverage sale is made,
or to acquire the commodity that might be deliverable on a short sale.
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. For example, in the case of options on futures contracts, a covered
call is a short call position combined with a long futures position. A covered
put is a short put position combined with a short futures position.
Cox-Ross-Rubinstein Option Pricing Model: An option pricing logarithm
developed by J. Cox, S. Ross and M. Rubinstein which can be adopted to include
effects not included in the Black-Scholes model (e.g., early exercise and price
CPO: See Commodity Pool Operator.
Crack: In energy futures, the simultaneous purchase of crude oil
futures and the sale of petroleum product futures to establish a refining
margin. See Gross Processing Margin.
Crop Year: The time period from one harvest to the next, varying
according to the commodity (i.e., July 1 to June 30 for wheat; September 1 to
August 31 for soybeans).
Cross-Hedge: Hedging a cash market position in a futures contract for
a different but price-related commodity.
Cross-Margining: A procedure for margining related securities,
options, and futures contracts jointly when different clearing houses clear
each side of the position.
Cross-Rate: In foreign exchange, the price of one currency in terms
of another currency in the market of a third country. For example, a London
dollar cross-rate could be the price of one U.S. dollar in terms of deutsche
marks on the London market.
Cross Trading: Offsetting or noncompetitive match of the buy order of
one customer against the sell order of another, a practice that is permissible
only when executed in accordance with the Commodity Exchange Act, CFTC
regulations, and rules of the contract market.
Crush Spread: In the soybean futures market, the simultaneous
purchase of soybean futures and the sale of soybean meal and soybean oil
futures to establish a processing margin. See Gross Processing
CTA: See Commodity Trading Advisor.
CTI Codes: Customer Type Indicator codes. These consist
of four identifiers which describe transactions by the type of customer for
which a trade is effected.. The four codes are: (1) trading for the member's
own account; (2) trading for a proprietary account of the clearing member's
firm; (3) trading for another member who is currently present on the trading
floor or for an account controlled by such other member; and (4) trading for
any other type of customer. Transaction data classified by the above codes are
included in the trade register report produced by a clearing organization.
Curb Trading: Trading by telephone or by other means that takes place
after the official market has closed. Originally it took place in the street on
the curb outside the market. Under CFTC rules, curb trading is illegal. Also
known as kerb trading.
Current Delivery Month: The futures contract which matures and
becomes deliverable during the present month. Also called Spot
Daily Price Limits: See Limit (Up or Down).
Day Order: An order that expires automatically at the end of each
day's trading session. There may be a day order with time contingency. For
example, an "off at a specific time" order is an order that remains
in force until the specified time during the session is reached. At such time,
the order is automatically canceled.
Day Traders: Commodity traders, generally members of the exchange on
the trading floor, who take positions in commodities and then offset them prior
to the close of trading on the same trading day.
Day Trading: Establishing and offsetting the same futures market
position within one day.
Dealer Option: A put or call on a physical commodity, not originating
on or subject to the rules of an exchange, in which the obligation for
performance rests with the writer of the option. Dealer options are normally
written by firms handling the underlying commodity and offered to public
customers, although the reverse may also be true.
Deck: The orders for purchase or sale of futures and option contracts
held by a floor broker.
Declaration Date: See Expiration Date.
Declaration (of Options): See Exercise.
Default: Failure to perform on a futures contract as required by
exchange rules, such as failure to meet a margin call, or to make or take
Deferred Futures: The futures contracts that expire during the most
distant months. Also called Back Months. See Forward
Purchase or Sale.
Deliverable Grades: See Contract Grades.
Deliverable Stocks: Stocks of commodities located in exchange
approved storage, for which receipts may be used in making delivery on futures
contracts. In the cotton trade, the term refers to cotton certified for
delivery. Also see Certificated Stocks.
Delivery: The tender and receipt of the actual commodity, the cash
value of the commodity, or of a delivery instrument covering the commodity
(e.g., warehouse receipts or shipping certificates), used to settle a futures
contract. See Notice of Delivery.
Delivery, Current: Deliveries being made during a present month.
Sometimes current delivery is used as a synonym for nearby delivery.
Delivery Date: The date on which the commodity or instrument of
delivery must be delivered to fulfill the terms of a contract.
Delivery Instrument: A document used to effect delivery on a futures
contract, such as a warehouse receipt or shipping certificate.
Delivery Month: The specified month within which a futures contract
matures and can be settled by delivery.
Delivery, Nearby: The nearest traded month. In plural form, one of
the nearer trading months.
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. This notice, delivered through the clearing house, is separate
and distinct from the warehouse receipt or other instrument that will be used
to transfer title.
Delivery Option: A provision of a futures contract which provides the
short with flexibility in regard to timing, location, quantity, or quality in
the delivery process.
Delivery Points: Those locations designated by commodity exchanges
where stocks of a commodity represented by a futures contract may be delivered
in fulfillment of the contract.
Delivery Price: The price fixed by the clearing house at which
deliveries on futures are invoiced--generally the price at which the futures
contract is settled when deliveries are made.
Delta: See Delta Value.
Delta Margining: An option margining system used by some exchanges
for exchange members and/or floor traders which equates the changes in option
premiums with the changes in the price of the underlying futures contract to
determine risk factors on which to base the margin requirements.
Delta Value: The expected change in an option's price given a
one-unit change in the price of the underlying futures contract or physical
Deposit: The initial outlay required by a broker of a client to open
a futures position, returnable upon liquidation of that position.
Depository Receipt: See Vault Receipt.
Derivative: A financial instrument, traded on or off an exchange, the
price of which is directly dependent upon (i.e., "derived from") the
value of one or more underlying securities, equity indices, debt instruments,
commodities, other derivative instruments, or any agreed upon pricing index or
arrangement (e.g., the movement over time of the Consumer Price Index or
freight rates). Derivatives involve the trading of rights or obligations based
on the underlying product, but do not directly transfer property. They are used
to hedge risk or to exchange a floating rate of return for fixed rate of
Designated Self Regulatory Organization (DSRO): Self regulatory
organizations (i.e., the commodity exchanges and the National Futures
Association) must enforce minimum financial and reporting requirements for
their members, among other responsibilities outlined in the CFTC's regulations.
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 responsible for assuming
these regulatory duties and, upon approval of the plan by the Commission, be
appointed the "designated self regulatory organization" for that FCM.
Diagonal Spread: A spread between two call options or two put options
with different strike prices and different expiration dates.
Differentials: The discount (premium) allowed for grades or locations
of a commodity lower (higher) than the par of basis grade or location specified
in the futures contact. See Allowances.
Discount: (1) The amount a price would be reduced to purchase a
commodity of lesser grade; (2) sometimes used to refer to the price differences
between futures of different delivery months, as in the phrase "July at a
discount to May," indicating that the price for the July futures is lower
than that of May.
Discount Basis: Method of quoting securities where the price is
expressed as a annualized discount from maturity value.
Discount Bond: A bond selling below par. See Par.
Discretionary Account: An arrangement by which the holder of an
account gives written power of attorney to someone else, often a broker, to buy
and sell without prior approval of the holder; often referred to as a
"managed account" or "controlled account." See
Distant or Deferred Delivery: Usually means one of the more distant
months in which futures trading is taking place.
Dominant Future: That future having the largest number of open
Double Hedging: As used by the CFTC, it implies a situation where a
trader holds a long position in the futures market in excess of the speculative
limit as an offset to a fixed price sale even though the trader has an ample
supply of the commodity on hand to fill all sales commitments.
DSRO: See Designated Self Regulatory Organization.
Dual Trading: Dual trading occurs when: (1) a floor broker executes
customer orders and, on the same day, trades for his own account or an account
in which he has an interest; or (2) an FCM carries customer accounts and also
trades or permits its employees to trade in accounts in which it has a
proprietary interest, also on the same trading day.
Duration: A measure of a bond's price sensitivity to changes in
Ease Off: A minor and/or slow decline in the price of a market.
ECU: See European Currency Unit.
Efficient Market: A market in which new information is immediately
available to all investors and potential investors. A market in which all
information is instantaneously assimilated and therefore has no distortions.
EFP: Exchange for Physical. See Exchange of Futures for
Elliot Wave: (1) A theory named after Ralph Elliot, who contended
that the stock market tends to move in discernible and predictable patterns
reflecting the basic harmony of nature; (2) in technical analysis, a charting
method based on the belief that all prices act as wavers, rising and falling
Equity: The residual dollar value of a futures, option, or leverage
trading account, assuming it was liquidated at current prices.
Eurocurrency: Certificates of Deposit (CDS), bonds, deposits, or any
capital market instrument issued outside of the national boundaries of the
currency in which the instrument is denominated (for example, Euro-Swiss
francs, Euro-Deutsche marks, eurodollars, eurodollar bonds, or eurodollar CDS).
Eurodollar: U.S. dollar deposits placed with banks outside the U.S.
Holders may include individuals, companies, banks and central banks.
Eurodollar Bonds: Bonds issued in Europe by corporate or government
interests outside the boundary of the national capital market, denominated in
Eurodollar CDS: Dollar-denominated certificates of deposit issued by
a bank outside of the United States, either a foreign bank or U.S. bank
European Currency Unit: The official unit of account of the European
Monetary System. It is a combination or basket of the currencies from the
twelve European Community countries: the Deutsche mark, French franc, British
pound sterling, Irish pound, Italian lira, Belgian franc, Dutch guilder,
Luxembourg franc, Greek drachma, Spanish peseta, Portuguese escudo, and the
Even Lot: A unit of trading in a commodity established by an exchange
to which official price quotations apply. See Round Lot.
Exchange of Futures for Cash: A transaction in which the buyer of a
cash commodity transfers to the seller a corresponding amount of long futures
contracts, or receives from the seller a corresponding amount of short futures,
at a price difference mutually agreed upon. In this way the opposite hedges in
futures of both parties are closed out simultaneously. Also called EFP
(Exchange for Physical), AA (Against Actuals) or Ex-Pit transactions.
Exchange Rate: The price of one currency stated in terms of another
Exchange Risk Factor: The delta value of an option as computed daily
by the exchange on which it is traded.
Exercise: To elect to buy or sell, taking advantage of the right (but
not the obligation) conferred by an option contract.
Exercise (or Strike) Price: The price specified in the option
contract at which the buyer of a call can purchase the commodity during the
life of the option, and the price specified in the option contract at which the
buyer of a put can sell the commodity during the life of the option.
Exotic Options: Any of a wide variety of options with non-standard
payout structures, including Asian options and Look back options.
Exotic options are mostly traded in the over-the-counter market.
Expiration Date: The date on which an option contract automatically
expires; the last day an option can be exercised.
Extrinsic Value: See Time Value.
Ex-Pit: See Transfer Trades and Exchange of Futures for
FAB Spread: Five Against Bond. A futures spread trade
involving the buying (selling) of a five-year Treasury bond futures contract
and the selling (buying) of a long-term (15-30 year) Treasury bond futures
Fannie Mae: See Federal National Mortgage Association.
FAN Spread: Five Against Note. A futures spread trade
involving the buying (selling) of a five-year Treasury note futures contract
and the selling (buying) of a ten-year Treasury bond futures contract.
Fast Tape: Transactions in the pit or ring take place in such volume
and with such rapidity that price reporters are behind with price quotations,
so insert "FAST" and show a range of prices.
Federal National Mortgage Association (FNMA): A corporation created
by Congress to support the secondary mortgage market; it purchases and sells
residential mortgages insured by the Federal Home Administration (FHA) or
guaranteed by the Veteran's Administration (VA).
Feed Ratio: The relationship of the cost of feed, expressed as a
ratio to the sale price of animals, such as the corn-hog ratio. These serve as
indicators of the profit margin or lack of profit in feeding animals to market
FIA: See Futures Industry Association.
Fictitious Trading: Wash trading, bucketing, cross trading, or other
schemes which give the appearance of trading. Actually, no bona fide,
competitive trade has occurred.
Fill or Kill Order: An order which demands immediate execution or
Financial Instruments: As used by the CFTC, this term generally
refers to any futures or option contract that is not based on an agricultural
commodity or a natural resource. It includes currencies, securities, mortgages,
commercial paper, and indices of various kinds.
First Notice Day: The first day on which notices of intent to deliver
actual commodities against futures market positions can be received. First
notice day may vary with each commodity and exchange.
Fix, Fixing: See Gold Fixing.
Fixed Income Security: A security whose nominal (or current dollar)
yield is fixed or determined with certainty at the time of purchase.
Floor Broker: Any person who, in any pit, ring, post or other place
provided by a contract market for the meeting of persons similarly engaged,
executes for another person any orders for the purchase or sale of any
commodity for future delivery.
Floor Trader: An exchange member who executes his own trades by being
personally present in the pit for futures trading. See Local.
F.O.B. (Free On Board): Indicates that all delivery, inspection and
elevation or loading costs involved in putting commodities on board a carrier
have been paid.
Forced Liquidation: The situation in which a customer's account is
liquidated (open positions are offset) by the brokerage firm holding the
account, usually after notification that the account is undercapitalized
Force Majeure: A clause in a supply contract which permits either
party not to fulfill the contractual commitments due to events beyond their
control. These events may range from strikes to export delays in producing
Foreign Exchange: Foreign Currency. On the foreign exchange market,
foreign currency is bought and sold for immediate or future delivery.
Forward: In the future.
Forwardation: See Contango.
Forward Contracting: A cash transaction common in many industries,
including commodity merchandising, in which a commercial buyer and seller agree
upon delivery of a specified quality and quantity of goods at a specified
future date. A price may be agreed upon in advance, or there may be agreement
that the price will be determined at the time of delivery.
Forward Market: Refers to informal (non-exchange) trading of
commodities to be delivered at a future date. Contracts for forward delivery
are "personalized" (i.e., delivery time and amount are as determined
between seller and customer).
Forward Months: Futures contracts, currently trading, calling for
later or distant delivery. See Deferred Futures.
Forward Purchase or Sale: A purchase or sale between commercial
parties of an actual commodity for deferred delivery.
Free Crowd System: A system of trading, common to most U.S. commodity
exchanges, where all floor members may bid and offer simultaneously either for
their own accounts or for the accounts of customers, and transactions may take
place simultaneously at different places in the trading ring. Also see
Board Broker System and Specialist System.
Front running: With respect to commodity futures and options, taking a
futures or option position based upon non-public information regarding an
impending transaction by another person in the same or related future or
Full Carrying Charge, Full Carry: See Carrying Charges.
Fundamental Analysis: Study of basic, underlying factors which will
affect the supply and demand of the commodity being traded in futures
contracts. See Technical Analysis.
Fungibility: The characteristic of interchangeability. Futures
contracts for the same commodity and delivery month are fungible due to their
standardized specifications for quality, quantity, delivery date and delivery
Futures: See Futures Contract.
Futures Commission Merchant (FCM): Individuals, associations,
partnerships, corporations and trusts that solicit or accept orders for the
purchase or sale of any commodity for future delivery on or subject to the
rules of any contract market and that accept payment from or extend credit to
those whose orders are accepted.
Futures Contract: An agreement to purchase or sell a commodity for
delivery in the future: (1) at a price that is determined at initiation of the
contract; (2) which obligates each party to the contract to fulfill the
contract at the specified price; (3) which is used to assume or shift price
risk; and (4) which may be satisfied by delivery or offset.
Futures-equivalent: A term frequently used with reference to
speculative position limits for options on futures contracts. The
futures-equivalent of an option position is the number of options multiplied by
the previous day's risk factor or delta for the option series. For example, 10
deep out-of-money options with a risk factor of 0.20 would be considered 2
futures-equivalent contracts. The delta or risk factor used for this purpose is
the same as that used in delta-based margining and risk analysis systems.
Futures Industry Association (FIA): A membership organization for
futures commission merchants (FCMs) which, among other activities, offers
education courses on the futures markets, disburses information and lobbies on
behalf of its members.
Futures Price: (1) Commonly held to mean the price of a commodity for
future delivery that is traded on a futures exchange. (2) The price of any
Ginnie Mae: Pass-through mortgage-backed certificates guaranteed by
the Government National Mortgage Association (GNMA or Ginnie Mae). The
certificates are backed by pools of FHA insured and/or VA guaranteed
residential mortgages, with the mortgage and not held in safekeeping by a
custodial financial institution. Also called G.N.M.A.s or
Ginzy Trading: A trade practice in which a floor broker, in executing
an order -- particularly a large order -- will fill a portion of the order at
one price and the remainder of the order at another price to avoid an
exchange's rule against trading at fractional increments or "split
ticks." In In re Murphy, [1984-86 Transfer Binder] Comm. Fut L.
Rep. (CCH) at pp. 31,353-4 (Sept. 25, 1985), the Commission found that ginzy
trading was a noncompetitive trading practice in violation of section
4c(a)(B) of the Commodity Exchange Act and CFTC regulation 1.38(a).
Give Up: A contract executed by one broker for the client of another
broker that the client orders to be turned over to the second broker. The
broker accepting the order from the customer collects a wire toll from the
carrying broker for the use of the facilities. Often used to consolidate many
small orders or to disperse large ones.
Globex: An international electronic trading system for futures and
options that allows participating exchanges to list their products for trading
after the close of the exchanges' open outcry trading hours. Developed by
Reuters Limited for use by the Chicago Mercantile Exchange (CME),
Globex was launched on June 25, 1992, for certain CME contracts. Various MATIF
(Marche a Terme International de France) contracts began trading on the system
on March 15, 1993.
G.N.M.A.: The Government National Mortgage Association; a government
agency within the Department of Housing and Urban Development that, among other
things, guarantees payment on mortgage-backed certificates. (See Ginnie
Gold Certificate: A certificate attesting to a person's ownership of
a specific amount of gold bullion.
Gold Fixing (Gold Fix): The setting of the gold price at 10:30 AM
(first fixing) and 3:00 PM (second fixing) in London by five representatives of
the London Gold Market. See London Gold Market.
Gold/Silver Ratio: The number of ounces of silver required to buy one
ounce of gold at current spot prices.
Good This Week Order (GTW): Order which is valid only for the week in
which it is placed.
Good 'Til Canceled Order (GTC): Order which is valid at any time
during market hours until executed or canceled. See Open Order.
GPM: See Gross Processing Margin.
Grades: Various qualities of a commodity.
Grading Certificates: A formal document setting forth the quality of
a commodity as determined by authorized inspectors or graders.
Grain Futures Act: Federal statute which regulated trading in grain
futures, effective June 22, 1923; administered by the U.S. Department of
Agriculture; amended in 1936 by the Commodity Exchange Act.
Grantor: The maker, writer, or issuer of an option contract who, in
return for the premium paid for the option, stands ready to purchase the
underlying commodity (or futures contract) in the case of a put option or to
sell the underlying commodity (or futures contract) in the case of a call
Gross Processing Margin (GPM): Refers to the difference between the
cost of a commodity and the combined sales income of the finished products
which result from processing the commodity. Various industries have formulas to
express the relationship of raw material costs to sales income from finished
products. See Crack and Crush.
GTC: See Good 'Til Canceled order.
GTW: See Good This Week order.
Haircut: (1) In determining whether assets meet capital requirements,
a percentage reduction in the stated value of assets. (2) In computing the
worth of assets deposited as collateral or margin, a reduction from market
Hardening: (1) Describes a price which is gradually stabilizing; (2)
a term indicating a slowly advancing market.
Heavy: A market in which prices are demonstrating either an inability
to advance or a slight tendency to decline.
Hedge Ratio: Ratio of the value of futures contracts purchased or
sold to the value of the cash commodity being hedged, a computation necessary
to minimize basis risk.
Hedging: Taking a position in a futures market opposite to a position
held in the cash market to minimize the risk of financial loss from an adverse
price change; a purchase or sale of futures as a temporary substitute for a
cash transaction that will occur later.
Hog-Corn Ratio: See Feed Ratio.
Hybrid-Instruments: Financial instruments that possess, in varying
combinations, characteristics of forward contracts, futures contracts, option
contracts, debt instruments, bank depository interests, and other interests.
Certain hybrid instruments are exempt from CFTC regulation.
IB: See Introducing Broker.
Index Arbitrage: The simultaneous purchase (sale) of stock index
futures and the sale (purchase) of some or all of the component stocks which
make up the particular stock index to profit from sufficiently large
inter market spreads between the futures contract and the index itself.
Initial Deposit: See Initial Margin.
Initial Margin: Customers' funds put up as security for a guarantee
of contract fulfillment at the time a futures market position is established.
See Original Margin.
In Sight: The amount of a particular commodity that arrives at
terminal or central locations is or near producing areas. When a commodity is
"in sight," it is inferred that reasonably prompt delivery can be
made; the quantity and quality also become known factors rather than estimates.
Intercommodity Spread: A spread in which the long and short legs are
in two different but generally related commodity markets. Also called an
intermarket spread. See Spread.
Interdelivery Spread: A spread involving two different months of the
same commodity. Also called an intracommodity spread. See
Interest Rate Futures: Futures contracts traded on fixed income
securities such as G.N.M.A.s, U.S. Treasury issues, or CDS. Currency is
excluded from this category, even though interest rates are a factor in
Intermarket Spread: See Spread and Intercommodity
International Commodities Clearinghouse (ICCH): An independent
organization that serves as a clearinghouse for most futures markets in London,
Bermuda, Singapore, Australia, and New Zealand.
In-The-Money: A term used to describe an option contract that has a
positive value if exercised. A call at $400 on gold trading at $410 is
in-the-money 10 dollars.
Intracommodity Spread: See Spread and Interdelivery
Intrinsic Value: A measure of the value of an option or a warrant if
immediately exercised. The amount by which the current price for the underlying
commodity or futures contract is above the strike price of a call option or
below the strike price of a put option for the commodity or futures contract.
Introducing Broker (or IB): Any person (other than a person
registered as an "associated person" of a futures commission
merchant) who is engaged in soliciting or in accepting orders for the purchase
or sale of any commodity for future delivery on an exchange who does not accept
any money, securities, or property to margin, guarantee, or secure any trades
or contracts that result therefrom.
Inverted Market: A futures market in which the nearer months are
selling at prices higher than the more distant months; a market displaying
"inverse carrying charges," characteristic of markets with supply
shortages. See Backwardation.
Invisible Supply: Uncounted stocks of a commodity in the hands of
wholesalers, manufacturers and producers which cannot be identified accurately;
stocks outside commercial channels but theoretically available to the market.
ISDA: The International Swap Dealers Association, Inc., a New
York-based group of major international swap dealers, which has published the
Code of Standard Wording, Assumptions and Provisions for Swaps, or Swaps
Code, for U.S. dollar interest rate swaps as well as standard master interest
rate and currency swap agreements and definitions for use in connection with
the creation and trading of swaps.
Job Lot: A form of contract having a smaller unit of trading than is
featured in a regular contract.
Kerb Trading or Dealing: See Curb Trading.
Large Order Execution (LOX) Procedures: Rules in place at the Chicago
Mercantile Exchange that authorize a member firm which receives a large order
from an initiating party to solicit counterparty interest off the exchange
floor prior to open execution of the order in the pit and that provide for
special surveillance procedures. The parties determine a maximum quantity and
an "intended execution price." Subsequently, the initiating party's
order quantity is exposed to the pit; any bids (or offers) up to and including
those at the intended execution price are hit (acceptable). The unexecuted
balance is then crossed with the contraside trader found using the LOX
Large Traders: A large trader is one who holds or controls a position
in any one future or in any one option expiration series of a commodity on any
one contract market equaling or exceeding the exchange or CFTC-specified
Last Notice Day: The final day on which notices of intent to deliver
on futures contracts may be issued.
Last Trading Day: Day on which trading ceases for the maturing
(current) delivery month.
Leaps: Long-dated, exchange-traded options.
Leverage Contract: A contract, standardized as to terms and
conditions, for the long-term (ten years or longer) purchase (long leverage
contract) or sale (short leverage contract) by a leverage customer of leverage
commodity which provides for: (1) participation by the leverage transaction
merchant as a principal in each leverage transaction; (2) initial and
maintenance margin payments by the leverage customer; (3) periodic payment by
the leverage customer or accrual by the leverage transaction merchant to the
leverage customer of a variable carrying charge or fee on the initial value of
the contract plus any margin deposits made by the leverage customer in
connection with a short leverage contract; (4) delivery of a commodity in an
amount and form which can be readily purchased and sold in normal commercial or
retail channels; (5) delivery of the leverage commodity after satisfaction of
the balance due on the contract; and (6) determination of the contract purchase
and repurchase, or sale and resale, prices by the leverage transaction
Leverage Dealer: See Leverage Transaction Merchant.
Leverage Transaction Merchant: Any individual, association,
partnership, corporation, or trust that is engaged in the business of offering
to enter into, entering into, or confirming the execution of leverage
contracts, or soliciting or accepting orders for leverage contracts, and who
accepts leverage customer funds or extends credit in lieu of those funds.
Licensed Warehouse: A warehouse approved by exchange from which a
commodity may be delivered on a futures contract. See Regular
Life of Contact: Period between the beginning of trading in a
particular futures contract and the expiration of trading. In some cases this
phrase denotes the period already passed in which trading has already occurred.
For example, "The life-of-contract high so far is $2.50." Same as
Life of Delivery or Life of the Future.
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. See Daily Price Limits.
Limit Move: A price that has advanced or declined the permissible
limit during one trading session, as fixed by the rules of a contract market.
Limit Only: The definite price stated by a customer to a broker
restricting the execution of an order to buy for not more than, or to sell for
not less than, the stated price.
Limit Order: An order in which the customer specifies a price limit
or other condition, such as time of an order, as contrasted with a market order
which implies that the order should be filled as soon as possible.
Liquidation: The closing out of a long position. The term is
sometimes used to denote closing out a short position, but this is more often
referred to as covering. See Cover.
Liquid Market: A market in which selling and buying can be
accomplished with minimal price change.
Local: A member of a U.S. exchange who trades for his own account
and/or fills orders for customers and whose activities provide market
liquidity. See Floor Trader.
Locked-In: A hedged position that cannot be lifted without offsetting
both sides of the hedge (spread). See Hedging. Also refers to
being caught in a limit price move.
London Gold Market: Refers to the five dealers who set (fix) the gold
price in London: Mocatta & Goldsmid, N. Rothschild & Sons, Johnson
Matthey, Sharps Pixley, and Samuel Montagu & Co.
London Option: A generic term sometimes used to describe options on
physical commodities or on futures contracts traded abroad (typified by options
on London commodity markets). These options, which often had nothing whatsoever
to do with legitimate foreign markets, gained notoriety--prior to their ban in
the United States in 1978--because of the sales practices and fraud allegations
associated with the American dealers who sold them.
Long: (1) One who has bought a futures contract to establish a market
position; (2) a market position which obligates the holder to take delivery;
(3) one who owns an inventory of commodities. See Short.
Long Hedge: Purchase of futures against the fixed price forward sale
of a cash commodity.
Long the Basis: A person or firm that has bought the spot commodity
and hedged with a sale of futures is said to be long the basis.
Lookback Option: An option whose payoff depends on the minimum or
maximum price of the underlying asset during some portion of the life of the
Lot: A unit of trading. See Even Lot, Job Lot, and Round
LTM: Leverage Transaction Merchant.
Maintenance Margin: See Margin.
Managed Account: See Controlled Account and
Margin: The amount of money or collateral deposited by a customer
with his broker, by a broker with a clearing member, or by a clearing member
with the clearinghouse, for the purpose of insuring the broker or clearinghouse
against loss on open futures contracts. The margin is not partial payment on a
purchase. (1) Initial margin is the total amount of margin per contract
required by the broker when a futures position is opened; (2) Maintenance
margin is a sum which must be maintained on deposit at all times. If the equity
in a customer's account drops to, or under, the level because of adverse price
movement, the broker must issue a margin call to restore the customer's equity.
See Variation Margin.
Margin Call: (1) A request from a brokerage firm to a customer to
bring margin deposits up to initial levels; (2) a request by the clearinghouse
to a clearing member to make a deposit of original margin, or a daily or
intra-day variation payment, because of adverse price movement, based on
positions carried by the clearing member.
Market Correction: In technical analysis, a small reversal in prices
following a significant trending period.
Marketer: See Distributor.
Market-if-Touched (MIT) Order: An order that becomes a market order
when a particular price is reached. A sell MIT is placed above the market; a
buy MIT is placed below the market. Also referred to as a board
Market Marker: A professional securities dealer who has an obligation
to buy when there is an excess of sell orders and to sell when there is an
excess of buy orders. By maintaining an offering price sufficiently higher than
their buying price, these firms are compensated for the risk involved in
allowing their inventory of securities to act as a buffer against temporary
order imbalances. In the commodities industry, this term is sometimes loosely
used to refer to a floor trader or local who, in speculating for his own
account, provides a market for commercial users of the market. See
Market-on-Close: An order to buy or sell at the end of the trading
session at a price within the closing range of prices. See
Market-on-Opening: An order to buy or sell at the beginning of the
trading session at a price within the opening range of prices.
Market Order: An order to buy or sell a futures contract at whatever
price is obtainable at the time it is entered in the ring or pit. See
Mark-to-Market: Daily cash flow system used by U.S. futures exchanges
to maintain a minimum level of margin equity for a given futures or option
contract position by calculating the gain or loss in each contract position
resulting from changes in the price of the futures or option contracts at the
end of each trading day.
Maturity: Period within which a futures contract can be settled by
delivery of the actual commodity.
Maximum Price Fluctuation: See Limit (Up or Down).
Member Rate: Commission charged for the execution of an order for a
person who is a member of the exchange.
Minimum Price Contract: A hybrid commercial forward contract for
agricultural products which includes a provision guaranteeing the person making
delivery a minimum price for the product. For agricultural commodities, these
contracts became much more common with the introduction of exchange-traded
options on futures contracts, which permit buyers to hedge the price risks
associated with such contracts.
Minimum Price Fluctuation: Smallest increment of price movement
possible in trading a given contract.
Momentum: In technical analysis, the relative change in price over a
specific time interval. Often equated with speed or velocity and considered in
terms of relative strength.
Money Market: Short-term debt instruments.
Naked Call: See Naked Option.
Naked Option: The sale of a call or put option without holding an
offsetting position in the underlying commodity.
Naked Put: See Naked Option.
National Futures Association (NFA): A self regulatory organization
composed of futures commission merchants, commodity pool operators, commodity
trading advisors, introducing brokers, leverage transaction merchants,
commodity exchanges, commercial firms, and banks, that is responsible--under
CFTC oversight--for certain aspects of the regulation of FCMs, CPOs, IBs, LTMs,
and their associated persons, focusing primarily on the qualifications and
proficiency, financial condition, retail sales practices, and business conduct
of these futures professionals.
Nearbys: The nearest delivery months of a commodity futures market.
Nearby Delivery Month: The month of the futures contract closest to
Negative Carry: The cost of financing a financial instrument (the
short-term rate of interest), when the cost is above the current return of the
financial instrument. See Carrying Charges and Positive
Net Position: The difference between the open long contracts and the
open short contracts held by a trader in any one commodity.
NFA: National Futures Association.
NOB Spread: Note Against Bond. A futures spread trade
involving the buying (selling) of a Treasury note futures contract and the
selling (buying) of a Treasury bond futures contract.
Non-Member Traders: Speculators and hedgers who trade on the exchange
through a member but do not hold exchange memberships.
Nominal Price (or Nominal Quotation): Computed price quotation on
futures for a period in which no actual trading took place, usually an average
of bid and asked prices.
Notice Day: Any day on which notices of intent to deliver on futures
contracts may be issued.
Notice of Delivery: A notice that must be presented by the seller of
a futures contract to the clearinghouse. The clearinghouse then assigns the
notice and subsequent delivery instrument to a buyer. Also Notice of
Intention to Deliver.
Notional Amount: The amount (in an interest rate swap, forward rate
agreement, or other derivative instrument) or each of the amounts (in a
currency swap) to which interest rates are applied (whether or not expressed as
a rate or stated on a coupon basis) in order to calculate periodic payment
obligations. Also called the notional principal amount, the
contract amount, the reference amount, and the currency
Offer: An indication of willingness to sell at a given price;
opposite of bid.
Offset: Liquidating a purchase of futures contracts through the sale
of an equal number of contracts of the same delivery month, or liquidating a
short sale of futures through the purchase of an equal number of contracts of
the same delivery month. See Cover.
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 designated separately.
On Track (or Track Country Station): (1) A type of deferred delivery
in which the price is set f.o.b. seller's location, and the buyer agrees to pay
freight costs to his destination; (2) commodities loaded in railroad cars on
Opening Price (or Range): The price (or price range) recorded during
the period designated by the exchange as the official opening.
Opening, The: The period at the beginning of the trading session
officially designated by the exchange during which all transactions are
considered made "at the opening."
Open Interest: The total number of futures contracts long or short in
a delivery month or market that has been entered into and not yet liquidated by
an offsetting transaction or fulfilled by delivery. Also called Open
Contracts or Open Commitments.
Open Order (or Orders): An order that remains in force until it is
canceled or until the futures contracts expire. See Good 'Til
Canceled and Good This Week orders.
Open Outcry: Method of public auction required to make bids and
offers in the trading pits or rings of commodity exchanges.
Option: (1) A commodity option is a unilateral contract which gives
the buyer the right to buy or sell a specified quantity of a commodity at a
specific price within a specified period of time, regardless of the market
price of that commodity. Also see Put and Call; (2) A term
sometimes erroneously applied to a futures contract. It may refer to a specific
delivery month, as the "July Option."
Option Buyer: The person who buys calls, puts, or any combination of
calls and puts.
Option Grantor: The person who originates an option contract by
promising to perform a certain obligation in return for the price of the
option. Also known as Option Writer.
Original Margin: Term applied to the initial deposit of margin money
each clearing member firm is required to make according to clearinghouse rules
based upon positions carried, determined separately for customer and
proprietary positions; similar in concept to the initial margin or security
deposit required of customers by exchange regulations. See Initial
Out-Of-The-Money: A term used to describe an option that has no
intrinsic value. For example, a call at $400 on gold trading at $390 is
out-of-the-money 10 dollars.
Out Trade: A trade which cannot be cleared by a clearinghouse because
the trade data submitted by the two clearing members involved in the trade
differs in some respect (e.g., price and/or quantity). In such cases, the two
clearing members or brokers involved must reconcile the discrepancy, if
possible, and resubmit the trade for clearing. If an agreement cannot be
reached by the two clearing members or brokers involved, the dispute would be
settled by an appropriate exchange committee.
Overbought: A technical opinion that the market price has risen too
steeply and too fast in relation to underlying fundamental factors. Rank and
file traders who were bullish and long have turned bearish.
Overnight Trade: A trade which is not liquidated on the same trading
day in which it was established.
Oversold: A technical opinion that the market price has declined too
steeply and too fast in relation to underlying fundamental factors. Rank and
file traders who were bearish and short have turned bullish.
P&S (Purchase and Sale Statement): A statement sent by a
commission house to a customer when any part of a futures position is offset,
showing the number of contracts involved, the prices at which the contracts
were bought or sold, the gross profit or loss, the commission charges, the net
profit or loss on the transactions, and the balance.
Paper Profit or Loss: The profit or loss that would be realized if
open contracts were liquidated as of a certain time or a certain price.
Par: (1) Refers to the standard delivery point(s) and/or quality of a
commodity that is deliverable on a futures contract at contract price. Serves
as a benchmark upon which the base discounts or premiums for varying quality
and delivery locations. (2) In bond markets, an index (usually 100)
representing the face value of a bond.
Path Dependent Option: An option whose valuation and payoff depends
on the realized price path of the underlying asset, such as an Asian
option or a Lookback option.
Pay/Collect: A shorthand method of referring to the payment of a loss
(pay) and receipt of a gain (collect) by a clearing member to or from a
clearing organization that occurs after a futures position has been
marked-to-market. See Variation Margin.
Payment-in-Kind: Refers to an alternative to cash payments to
producers of various commodities under the U.S. Department of Agriculture
acreage control program authorized by Congress in 1985. The payments consisted
of generic certificates which could be exchanged for commodities held in
government warehouses or redeemed for equivalent monetary value.
Pegged Price: The price at which a commodity has been fixed by
Pegging: Effecting commodity transactions to prevent a decline in the
price of the commodity so that previously written put options will expire
worthless, thus protecting premiums previously received.
Pit: A specially constructed arena on the trading floor of some
exchanges where trading in a futures contract is conducted. On other exchanges
the term "ring" designates the trading area for a commodity. See
Pit Brokers: See Floor Broker.
Point: A measure of price change equal to 1/100
of one cent in most futures traded in decimal units. In grains, it is of one
cent; in T-bonds, it is one percent of par. See Tick.
Point-And-Figure: A method of charting which uses prices to form
patterns of movement without regard to time. It defines a price trend as a
continued movement in one direction until a reversal of a predetermined
criterion is met.
Point Balance: A statement prepared by futures commission merchants
to show profit or loss on all open contracts by computing them to an official
closing or settlement price, usually at calendar month end.
Pork Bellies: One of the major cuts of the hog carcass that, when
cured, becomes bacon.
Portfolio Insurance: A trading strategy which attempts to alter the
nature of price changes in a portfolio to substantially reduce the likelihood
of returns below some predetermined level for an established period of time.
This can be achieved by moving assets among stocks, cash and fixed-income
securities or, with the advent of stock index futures contracts, by hedging a
stock-only portfolio by selling stock index futures in a declining market or
purchasing futures in a rising market. The objective is to create an exposure
similar to that of a stock portfolio with a protective purchased put option.
Position: An interest in the market, either long or short, in the
form of one or more open contracts. Also, "in position" refers to a
commodity located where it can readily be moved to another point or delivered
on a futures contract. Commodities not so situated are "out of
position." Soybeans in Mississippi are out of position for delivery in
Chicago, but in position for export shipment from the Gulf.
Position Limit: The maximum position, either net long or net short,
in one commodity future (or option) or in all futures (or options) of one
commodity combined which may be held or controlled by one person as prescribed
by an exchange and/or by the CFTC.
Position Trader: A commodity trader who either buys or sells
contracts and holds them for an extended period of time, as distinguished from
the day trader, who will normally initiate and offset a futures position
within a single trading session.
Positive Carry: The cost of financing a financial instrument (the
short-term rate of interest), where the cost is less than the current return of
the financial instrument. See also Carrying Charges and Negative
Posted Price: An announced or advertised price indicating what a firm
will pay for a commodity or the price at which the firm will sell it.
Prearranged Trading: Trading between brokers in accordance with an
expressed or implied agreement or understanding, which is a violation of the
Commodity Exchange Act and CFTC regulations.
Premium: (1) the amount a price would be increased to purchase a
better quality commodity; (2) refers to a futures delivery month selling at a
higher price than another, as "July is at a premium over May;" (3)
cash prices that are above the futures price, such as in foreign exchanges. If
the forward rate for Italian lira is at a premium to spot lira, it is selling
above the spot price. See Contango, Discount; (4) the money,
securities or property the buyer pays to the writer for granting an option
Price Basing: A situation where producers, processors, merchants or
consumers of a commodity establish commercial transaction prices based on the
futures prices for that or a related commodity (e.g., an offer to sell corn at
5 cents over the December futures price). This phenomenon is commonly observed
in grain and metal markets.
Price Discovery: The process of determining the price level for a
commodity based on supply and demand factors.
Price Manipulation: Any planned operation, transaction or practice
calculated to cause or maintain an artificial price.
Price Movement Limit: See Limit (Up or Down).
Primary Market: (1) For producers, their major purchaser of
commodities; (2) in commercial marketing channels, an important center at which
spot commodities are concentrated for shipment to terminal markets; and (3) to
processors, the market that is the major supplier of their commodity needs.
Principals' Market: A market where the ring dealing members act as
principals for the transactions they conclude across the ring and with their
Privileges: See Option.
Program Trading: The purchase (or sale) of a large number of stocks
contained in or comprising a portfolio. Originally called "program"
trading when index funds and other institutional investors began to embark on
large-scale buying or selling campaigns or "programs" to invest in a
manner which replicated a target stock index, the term now also commonly
includes computer aided stock market buying or selling programs, portfolio
insurance, and index arbitrage.
Prompt Date: The date on which the buyer of an option will buy or
sell the underlying commodity (or futures contract) if the option is exercised.
Public: In trade parlance, non-professional speculators as
distinguished from hedgers and professional speculators or traders.
Public Elevators: Grain elevators in which bulk storage of grain is
provided for the public for a fee. Grain of the same grade but owned by
different persons is usually mixed or commingled as opposed to storing it
"identity preserved." Some elevators are approved by exchanges as
"regular" for delivery on futures contracts.
Purchase and Sale Statement: See P&S.
Puts: Option contracts which give the holder the right but not the
obligation to sell a specified quantity of a particular commodity or other
interest at a given price (the "strike price") prior to or on a
future date. Also called "put option," they will have a higher
(lower) value the lower (higher) the current market value of the underlying
article is relative to the strike price.
Put Option: An option to sell a specified amount of a commodity at an
agreed price and time at any time until the expiration of the option. A put
option is purchased to protect against a fall in price. The buyer pays a
premium to the seller/grantor of this option. The buyer has the right to sell
the commodity or enter into a short position in the futures market if the
option is exercised. Also see Call Option.
Pyramiding: The use of profits on existing positions as margin to
increase the size of the position, normally in successively smaller increments.
Quick Order: See Fill or Kill Order.
Quotation: The actual price or the bid or ask price of either cash
commodities or futures contracts.
Rally: An upward movement of prices. Same as Recovery.
Random Walk: An economic theory that price movements in the commodity
futures markets and in the securities markets are completely random in
character (i.e., past prices are not a reliable indicator of future prices).
Range: The difference between the high and low price of a commodity
during a given period.
Ratio Hedge: The number of options compared to the number of futures
contracts bought or sold in order to establish a hedge that is risk neutral.
Ratio Spread: This strategy, which applies to both puts and calls,
involves buying or selling options at one strike price in greater number than
those bought or sold at another strike price.
Reaction: The downward price movement tendency of a commodity after a
Recovery: An upward price movement after a decline. Same as
Regular Warehouse: A processing plant or warehouse that satisfies
exchange requirements for financing, facilities, capacity, and location and has
been approved as acceptable for delivery of commodities against futures
contracts. See Licensed Warehouse.
Replicating Portfolio: A portfolio of assets for which changes in
value match those of a target asset. For example, a portfolio replicating a
standard option can be constructed with certain amounts of the asset underlying
the option and bonds. Sometimes referred to as a Synthetic Asset.
Reporting Level: Sizes of positions set by the exchanges and/or the
CFTC at or above which commodity traders or brokers who carry these accounts
must make daily reports about the size of the position by commodity, by
delivery month, and whether the position is controlled by a commercial or
Resistance: In technical trading, a price area where new selling will
emerge to dampen a continued rise. Also see Support.
Resting Order: An order to buy at a price below or to sell at a price
above the prevailing market that is being held by a floor broker. Such orders
may either be day orders or open orders.
Retender: In specific circumstances, some contract markets permit
holders of futures contracts who have received a delivery notice through the
clearing house 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
Retracement: A reversal within a major price trend.
Reversal: A change of direction in prices.
Reverse Conversion: With regard to options, a position created by
buying a call option, selling a put option, and selling the underlying futures
Riding the Yield Curve: Trading in an interest rate futures according
to the expectations of change in the yield curve.
Ring: A circular area on the trading floor of an exchange where
traders and brokers stand while executing futures trades. Some exchanges use
pits rather than rings. See Pit.
Risk Factor: See Delta Value.
Risk/Reward Ratio: The relationship between the probability of loss
and profit. This ratio is often used as a basis for trade selection or
Roll-Over: A trading procedure involving the shift of one month of a
straddle into another future month while holding the other contract month. The
shift can take place in either the long or short straddle month. The term also
applies to lifting a near futures position and re-establishing it in a more
deferred delivery month.
Round Lot: A quantity of a commodity equal in size to the
corresponding futures contract for the commodity. See Even Lot.
Round Turn: A completed transaction involving both a purchase and a
liquidating sale, or a sale followed by a covering purchase.
Rules: The principles for governing an exchange. In some exchanges,
rules are adopted by a vote of the membership, while regulations can be imposed
by the governing board.
Sample Grade: In commodities, usually the lowest quality of a
commodity, too low to be acceptable for delivery in satisfaction of futures
Scale Down (or Up): To purchase or sell a scale down means to
buy or sell at regular price intervals in a declining market. To buy or sell on
scale up means to buy or sell at regular price intervals as the market
Scalper: A speculator on the trading floor of an exchange who buys
and sells rapidly, with small profits or losses, holding his positions for only
a short time during a trading session. Typically, a scalper will stand ready to
buy at a fraction below the last transaction price and to sell at a fraction
above, thus creating market liquidity.
Scalping: The practice of trading in and out of the market on very
small price fluctuations. A person who engages in this practice is known as a
Security Deposit: See Margin.
Seller's Call: See Call.
Seller's Market: A condition of the market in which there is a
scarcity of goods available and hence sellers can obtain better conditions of
sale or higher prices. Also see Buyer's Market.
Seller's Option: The right of a seller to select, within the limits
prescribed by a contract, the quality of the commodity delivered and the time
and place of delivery.
Selling Hedge (or Short Hedge): Selling futures contracts to protect
against possible decreased prices of commodities. Also see
Series (of Options): Options of the same type (i.e., either puts or
calls, but not both), covering the same underlying futures contract or physical
commodity, having the same strike price and expiration date.
Settlement: The act of fulfilling the delivery requirements of the
Settlement or Settling Price: The daily price at which the clearing
house clears all trades and settles all accounts between clearing members of
each contract month. Settlement prices are used to determine both margin calls
and invoice prices for deliveries. The term also refers to a price established
by the exchange to even up positions which may not be able to be liquidated in
Sharpe Ratio: A measurement of trading performance calculated as the
average return divided by the variance of those returns; named after William P.
Shipping Certificate: A negotiable instrument used by several futures
exchanges as the futures delivery instrument for several commodities (e.g.,
soybean meal, plywood, and white wheat). The shipping certificate is issued by
exchange-approved facilities and represents a commitment by the facility to
deliver the commodity to the holder of the certificate under the terms
specified therein. Unlike an issuer of a warehouse receipt who has physical
product in store, the issuer of a shipping certificate may honor its obligation
from current production or through-put as well as from inventories.
Shock Absorber: A temporary restriction in the trading of stock index
futures which becomes effective following a significant intraday decrease in
stock index futures prices. Designed to provide an adjustment period to digest
new market information, the restriction bars trading below a specified price
level. Shock Absorbers are generally market specific and at tighter
levels than circuit breakers.
Short: (1) The selling side of an open futures contract; (2) a trader
whose net position in the futures market shows an excess of open sales over
open purchases. See Long.
Short Covering: See Cover.
Short Hedge: See Selling Hedge.
Short Selling: Selling a futures contract with the idea of delivering
on it or offsetting it at a later date.
Short Squeeze: See Squeeze.
Short the Basis: The purchase of futures as a hedge against a
commitment to sell in the cash or spot markets. See Hedging.
Small Traders: Traders who hold or control positions in futures or
options that are below the reporting level specified by the exchange or the
Soft: A description of a price which is gradually weakening. Also
refers to commodities such as sugar, cocoa, and coffee.
Soften: The process of a slowly declining market price.
Sold-Out-Market: When liquidation of a weakly-held position has been
completed, and offerings become scarce, the market is said to be sold
Specialist System: A type of trading commonly used for the exchange
trading of securities in which one individual or firm acts as a market-maker in
a particular security, with the obligation to see that trading in that security
is fair and orderly by offsetting temporary imbalances in supply and demand by
trading for his own account. Also see Board Broker System and Free
Speculative Bubble: A rapid, but usually short-lived, run-up in
prices caused by excessive buying which is unrelated to any of the basic,
underlying factors affecting the supply or demand for the commodity.
Speculative bubbles are usually associated with a "bandwagon" effect
in which speculators rush to buy the commodity (in the case of futures,
"to take positions") before the price trend ends, and an even greater
rush to sell the commodity (unwind positions) when prices reverse.
Speculative Limit: See Position Limit.
Speculative Position Limit: See Position Limit.
Speculator: In commodity futures, an individual who does not hedge,
but who trades with the objective of achieving profits through the successful
anticipation of price movements.
Split Close: Term which refers to price differences in transactions
at the close of any market session.
Spot: Market of immediate delivery of the product and immediate
payment. Also refers to a maturing delivery month of a futures contract.
Spot Commodity: (1) The actual commodity as distinguished from a
futures contract: (2) sometimes used to refer to cash commodities available for
immediate delivery. Also see Actuals or Cash Commodity.
Spot Month: See Current Delivery Month.
Spot Price: The price at which a physical commodity for immediate
delivery is selling at a given time and place. See Cash Price.
Spread (or Straddle): The purchase of one futures delivery month
against the sale of another futures delivery month of the same commodity; the
purchase of one delivery month of one commodity against the sale of that same
delivery month of a different commodity; or the purchase of one commodity in
one market against the sale of the commodity in another market, to take
advantage of a profit from a change in price relationships. See also
Arbitrage, Switch. The term spread is also used to refer to the
difference between the price of a futures month and the price of another month
of the same commodity. A spread can also apply to options.
Squeeze: A market situation in which the lack of supplies tends to
force shorts to cover their positions by offset at higher prices.
SRO: See Designated Self-Regulatory Organization.
Standby Commitment: A put option in Ginnie Mae trading which gives
the holder the right, but not the obligation, to make delivery.
Stop-Close-Only Order: A stop order which can only be executed, if
possible, during the closing period of the market. See also
Stop Limit Order: A stop limit order is an order that goes into force
as soon as there is a trade at the specified price. The order, however, can
only be filled at the stop limit price or better.
Stop Order: This is an order that becomes a market order when a
particular price level is reached. A sell stop is placed below the
market, a buy stop is placed above the market. Sometimes referred to
as Stop Loss Order.
Straddle: See Spread.
Strangle: An option position consisting of the purchase or sale of
put and call options having the same expiration but different strike prices.
Street Book: A daily record kept by futures commission merchants and
clearing members showing details of each futures transaction, including date,
price, quantity, market, commodity, future, and the person for whom the trade
Striking Price (Exercise or Contract Price): The price, specified in
the option contract, at which the underlying futures contract or commodity will
move from seller to buyer.
STRIPS: Separate Trading of Registered Interest and
Principal Securities. A book-entry system operated by the Federal Reserve
permitting separate trading and ownership of the principal and coupon portions
of selected Treasury securities. It allows the creation of zero coupon Treasury
securities from designated whole bonds.
Strong Hands: When used in connection with delivery of commodities on
futures contracts, the term usually means that the party receiving the delivery
notice probably will take delivery and retain ownership of the commodity; when
used in connection with futures positions, the term usually means positions
held by trade interests or well-financed speculators.
Support: In technical analysis, a price area where new buying is
likely to come in and stem any decline. Also see Resistance.
Swap: In general, the exchange of one asset or liability for a
similar asset or liability for the purpose of lengthening or shortening
maturities, or raising or lowering coupon rates, to maximize revenue or
minimize financing costs. In securities, this may entail selling one issue and
buying another in foreign currency, it may entail buying a currency on the spot
market and simultaneously selling it forward. Swaps may also involve exchanging
income flows; for example, exchanging the fixed rate coupon stream of a bond
for a variable rate payment stream, or vice versa, while not swapping the
principal component of the bond.
Swaption: An option to enter into a swap -- i.e., the right, but not
the obligation, to enter into a specified type of swap at a specified future
Switch: Offsetting a position in one delivery month of a commodity
and simultaneous initiation of a similar position in another delivery month of
the same commodity, a tactic referred to as "rolling forward." See
Synthetic Futures: A position created by combining call and put
options. A synthetic long futures position is created by combining a long call
option and a short put option for the same expiration date and the same strike
price. A synthetic short futures is created by combining a long put and a short
call with the same expiration date and the same strike price.
Systemic Risk: Market risk due to price fluctuations which cannot be
eliminated by diversification.
Taker: The buyer of an option contract.
T-Bond: See Treasury Bond.
Technical Analysis: An approach to forecasting commodity prices which
examines patterns of price change, rates of change, and changes in volume of
trading and open interest, without regard to underlying fundamental market
Ted Spread: The difference between the price of the three-month U.S.
Treasury bill futures contract and the price of the three-month Eurodollar time
deposit futures contract with the same expiration month.
Tender: To give notice to the clearinghouse of the intention to
initiate delivery of the physical commodity in satisfaction of the futures
contract. Also see Retender.
Tenderable Grades: See Contract Grades.
Terminal Elevator: An elevator located at a point of greatest
accumulation in the movement of agricultural products which stores the
commodity or moves it to processors.
Terminal Market: Usually synonymous with commodity exchange or
futures market, specifically in the United Kingdom.
Theta: The derivative of the option price equation with respect to
the remaining time to expiration of the option. A measure of the sensitivity of
the value of the option to the passage of time.
Tick: Refers to a minimum change in price up or down. See
Time-of-Day Order: This is an order which is to be executed at a
given minute in the session. For example, "Sell 10 March corn at 12:30
Time Spread: The selling of a nearby option and buying of a more
deferred option with the same strike price.
Time Value: That portion of an option's premium that exceeds the
intrinsic value. The time value of an option reflects the
probability that the option will move into-the-money. Therefore, the
longer the time remaining until expiration of the option, the greater its time
value. Also called Extrinsic Value.
To-Arrive Contract: A transaction providing for subsequent delivery
within a stipulated time limit of a specific grade of a commodity.
Trade Option: A commodity option transaction in which the taker is
reasonably believed by the writer to be engaged in business involving use of
that commodity or a related commodity.
Trader: (1) A merchant involved in cash commodities; (2) a
professional speculator who trades for his own account.
Transaction: The entry or liquidation of a trade.
Transfer Trades: Entries made upon the books of futures commission
merchants for the purpose of: (1) transferring existing trades from one account
to another within the same office where no change in ownership is involved; (2)
transferring existing trades from the books of one commission merchant to the
books of another commission merchant where no change in ownership is involved.
Also called Ex-Pit Transactions.
Transferable Option (or Contract): A contract which permits a
position in the option market to be offset by a transaction on the opposite
side of the market in the same contract.
Transfer Notice: A term used on some exchanges to describe a notice
of delivery. See Retender.
Treasury Bills: Short-term U.S. government obligations, generally
issued with 13, 26 or 52-week maturities.
Treasury Bonds (or T-Bond): Long-term obligations of the U.S.
government which pay interest semiannually until they mature or are called, at
which time the principal and the final interest payment is paid to the
Treasury Notes: Same as Treasury Bonds except that Treasury Notes are
medium-term and not callable.
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.
Underlying Commodity: The commodity or futures contract on which a
commodity option is based, and which must be accepted or delivered if the
option is exercised. Also, the cash commodity underlying a futures contract.
Variable Price Limit: A price limit schedule, determined by an
exchange, that permits variations above or below the normally allowable price
movement for any one trading day.
Variation Margin: Payment made on a daily or intraday basis by a
clearing member to the clearing organization based on adverse price movement in
positions carried by the clearing member, calculated separately for customer
and proprietary positions.
Vault Receipt: A document indicating ownership of a commodity stored
in a bank or other depository and frequently used as a delivery instrument in
precious metal futures contracts.
Visible Supply: Usually refers to supplies of a commodity in licensed
warehouses. Often includes afloats and all other supplies "in sight"
in producing areas.
Volatility Quote Trading: Refers to the quoting of bids and offers on
option contracts in terms of their implied volatilities rather than as prices.
Volume of Trade: The number of contracts traded during a specified
period of time. It may be quoted as the number of contracts traded or in the
total of physical units, such as bales or bushels, pounds or dozens.
Warehouse Receipt: A document certifying possession of a commodity in
a licensed warehouse that is recognized for delivery purposes by a commodity
Warrant: An issuer-based product that gives the buyer the right, but
not the obligation, to buy (in the case of a call) or to sell (in the case of a
put) a stock or a commodity at a set price during a specified period.
Warrant or Warehouse Receipt for Metals: Certificate of physical
deposit, which gives title to physical metal in an exchange approved warehouse.
Wash Sale: Transactions that give the appearance of purchases and
sales but which are initiated without the intent to make a bona fide
transaction and which generally do not result in any actual change in
ownership. Such sales are prohibited by the Commodity Exchange Act.
Wash Trading: Entering into, or purporting to enter into,
transactions to give the appearance that purchases and sales have been made,
without resulting in a change in the trader's market position.
Weak Hands: When used in connection with delivery of commodities on
futures contracts, the terms usually means that the party probably does not
intend to retain ownership of the commodity; when used in connection with
futures positions, the term usually means positions held by small speculators.
Wild Card Option: Refers to a provision of any physical delivery
Treasury Bond or Note futures contract which permits shorts to
wait until as late as 8:00 p.m. on any notice day to announce their intention
to deliver at invoice prices that are fixed at 2:00 p.m., the close of futures
trading, on that day.
Winter Wheat: Wheat that is planted in the fall, lies dormant during
the winter, and is harvested beginning about May of the next year.
Writer: The issuer, grantor, or maker of an option contract.
Yield Curve: A graphic representation of market yield for a fixed
income security plotted against the maturity of the security.