CFTC P-105 (Revised 01-97)
THE CFTC GLOSSARY:
A LAYMAN'S GUIDE
TO THE LANGUAGE OF THE
FUTURES INDUSTRY
Because the definitions of many words and phrases used throughout the
futures industry are not readily available in standard references, the
CFTC's Office of Public Affairs has compiled this glossary to assist
the layman in understanding the specialized words that are used in the
industry. This publication is not inclusive nor are general definitions
intended to state or suggest the views of the Commission concerning the
legal significance or meaning of any word or term.
Commodity Futures Trading Commission
January 31, 1997
CFTC GLOSSARY
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
Commodity.
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 Market Order.
At-the-Money: When an option's exercise price is the same as
the current trading price of the underlying commodity, the option is
at-the-money.
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.
Backpricing: 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 Market.
Banker's Acceptance: A draft or bill of exchange accepted by a
bank where the accepting institution guarantees payment. Used extensively
in foreign trade transactions.
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 locations.
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 price.
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 futures quotation.
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 same commodity.
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 Commission
Merchant.
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 an exchange.
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
prices.
Bullion: Bars or ingots of precious metals, usually cast in
standardized sizes.
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 option.
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 owner.
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 Seller's Market.
Buying Hedge (or Long Hedge): Hedging transaction in which futures
contracts are bought to protect against possible increases in the cost of
commodities. SeeHedging.
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
Actuals.
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 the contract.
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 prespecified future date is chosen to be either a
put or a call option.
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, intraday 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
Offset.
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 agricultural commodities.
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 Act.
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 at maturity.
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 contracts.
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 to agreement.
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.
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
contract.
Controlled Account: Any account for which trading is directed by
someone other than the owner. Also called a Managed Account or
a Discretionary Account.
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 installments.
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 supports).
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
Margin.
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
Month.
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
delivery.
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 commodity.
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 return.
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 Controlled Account.
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
contracts.
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 interest rates.
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
Cash.
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 rhythmically.
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 dollars.
Eurodollar CDS: Dollar-denominated certificates of deposit issued
by a bank outside of the United States, either a foreign bank or U.S.
bank subsidiary.
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 Danish krona.
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 currency.
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 Lookback
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 Cash.
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 contract.
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 weight.
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
cancellation.
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 (margin calls).
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 countries.
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.
Frontrunning: 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 option.
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 locations.
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 futures contract.
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 G.N.M.A. certificates.
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 Mae).
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 option.
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 value.
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 finanical 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 intermarket 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 Spread.
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
currency values.
Intermarket Spread: See Spread and Intercommodity
Spread.
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 $10 is
in-the-money 10 dollars.
Intracommodity Spread: See Spread and Interdelivery
Spread.
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 procedures.
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 reporting level.
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 satisfication 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 merchant.
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
Warehouse.
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 option.
Lot: A unit of trading. See Even Lot, Job Lot, and
Round Lot.
LTM: Leverage Transaction Merchant.
Maintenance Margin: See Margin.
Managed Account: See Controlled Account and
Discretionary Account.
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 order.
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 Specialist System.
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
Stop-Close-Only Order.
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 At-The-Market.
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 maturity.
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 Carry.
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 amount.
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 track.
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 Margin.
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
agreement.
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 Ring.
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 Carry.
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 contract.
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 clients.
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 price advance.
Recovery: An upward price movement after a decline. Same as
Rally.
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 non-commercial trader.
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 notice.
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 contract.
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 comparison.
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 contracts.
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 advances.
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 scalper.
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
Hedging.
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
futures contract.
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 regular trading.
Sharpe Ratio: A measurement of trading performance calculated as
the average return divided by the variance of those returns; named after
William P. Sharpe.
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 CFTC.
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 out.
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 Crowd System.
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
Market-on-Close Order.
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 was made.
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 date.
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 Arbitrage.
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 factors.
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
Point.
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 p.m."
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 investor.
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 futures exchange.
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.
Commodity Futures Trading Commission
Federal Regulatory Agency For Futures Trading
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, D.C. 20581
Phone: (202) 418-5000
Fax: (202) 418-5525
Eastern Region Headquarters
One World Trade Center - Suite 3747
New York, NY 10048
Phone: (212) 466-2061
Fax: (212) 466-5723
Central Region Headquarters
300 South Riverside Plaza
Suite 1600 North
Chicago, IL 60606
Phone: (312) 353-5990
Fax: (312) 353-2993
Southwestern Region Headquarters
4900 Main Street - Suite 721
Kansas City, MO 64112
Phone: (816) 931-7600
Fax: (816) 931-9643
Minneapolis Office - Southwestern Region
510 Grain Exchange Building
Minneapolis, MN 55415
Phone: (612) 370-3255
Fax: (612) 370-3257
Western Region Headquarters
Murdock Plaza
10900 Wilshire Boulevard - Suite 400
Los Angeles, CA 90024
Phone: (310) 235-6783
Fax: (310) 235-6782
Updated February 1, 2001