| Glossary of Futures Terms
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
| Accrued Interest: Interest earned
between the most recent interest payment and the
present date but not yet paid to the lender. |
| Add-on Method: A method of paying
interest where the interest is added onto the principal
at maturity or interest payment dates. |
| Adjusted Futures Price: The
cash-price equivalent reflected in the current futures
price. This is calculated by taking the futures price
times the conversion factor for the particular financial
instrument (e.g., bond or note) being delivered. |
| Arbitrage: The simultaneous
purchase and sale of similar commodities in different
markets to take advantage of a price discrepancy. |
| Arbitration: The procedure of
settling disputes between members, or between members
and customers. |
| Assign: To make an option seller
perform his obligation to assume a short futures
position (as a seller of a call option) or a long
futures position (as a seller of a put option). |
| Associated Person (AP): An individual
who solicits orders, customers, or customer funds
(or who supervises persons performing such duties)
on behalf of a Futures Commission Merchant, an Introducing
Broker, a Commodity Trading Adviser, or a Commodity
Pool Operator. |
| Associate Membership (CBOT):
A Chicago Board of Trade membership that allows an
individual to trade financial instrument futures
and other designated markets. |
| At-the-Money Option: An option
with a strike price that is equal, or approximately
equal, to the current market price of the underlying
futures contract. |
| Balance of Payment: A summary
of the international transactions of a country over
a period of time including commodity and service
transactions, capital transactions, and gold movements. |
| Bar Chart: A chart that graphs
the high, low, and settlement prices for a specific
trading session over a given period of time. |
| Basis: The difference between
the current cash price and the futures price of the
same commodity. Unless otherwise specified, the price
of the nearby futures contract month is generally
used to calculate the basis. |
| Bear: Someone who thinks market
prices will decline. |
| Bear Market: A period of declining
market prices. |
| Bear Spread: In most commodities
and financial instruments, the term refers to selling
the nearby contract month, and buying the deferred
contract, to profit from a change in the price relationship. |
| Bid: An expression indicating
a desire to buy a commodity at a given price; opposite
of offer. |
| Board of Trade Clearing Corporation:
An independent corporation that settles all trades
made at the Chicago Board of Trade acting as a guarantor
for all trades cleared by it, reconciles all clearing
member firm accounts each day to ensure that all
gains have been credited and all losses have been
collected, and sets and adjusts clearing member firm
margins for changing market conditions. Also referred
to as clearing corporation. See Clearinghouse. |
| Book Entry Securities: Electronically
recorded securities that include each creditor's
name, address, Social Security or tax identification
number, and dollar amount loaned, (i.e., no certificates
are issued to bond holders, instead, the transfer
agent electronically credits interest payments to
each creditor's bank account on a designated date). |
| Broker: A company or individual
that executes futures and options orders on behalf
of financial and commercial institutions and/or the
general public. |
| Bull: Someone who thinks market
prices will rise. |
| Bull Market: A period of rising
market prices. |
| Bull Spread: In most commodities
and financial instruments, the term refers to buying
the nearby month, and selling the deferred month,
to profit from the change in the price relationship. |
| Butterfly Spread: The placing
of two interdelivery spreads in opposite directions
with the center delivery month common to both spreads. |
| Calendar Spread: See Interdelivery
Spread and Horizontal Spread. |
| Call Option: An option that
gives the buyer the right, but not the obligation,
to purchase (go "long'') the underlying futures contract
at the strike price on or before the expiration date. |
| Canceling Order: An order that
deletes a customer's previous order. |
| Carrying Charge: For physical
commodities such as grains and metals, the cost of
storage space, insurance, and finance charges incurred
by holding a physical commodity. In interest rate
futures markets, it refers to the differential between
the yield on a cash instrument and the cost of funds
necessary to buy the instrument. Also referred to
as cost of carry or carry. |
| Carryover: Grain and oilseed
commodities not consumed during the marketing year
and remaining in storage at year's end. These stocks
are "carried over'' into the next marketing year
and added to the stocks produced during that crop
year. |
| Cash Commodity: An actual physical
commodity someone is buying or selling, e.g., soybeans,
corn, gold, silver, Treasury bonds, etc. Also referred
to as actuals. |
| Cash Contract: A sales agreement
for either immediate or future delivery of the actual
product. |
| Cash Market: A place where people
buy and sell the actual commodities, i.e., grain
elevator, bank, etc. See Spot and Forward Contract. |
| Cash Settlement: Transactions
generally involving index-based futures contracts
that are settled in cash based on the actual value
of the index on the last trading day, in contrast
to those that specify the delivery of a commodity
or financial instrument. |
| Certificate of Deposit (CD):
A time deposit with a specific maturity evidenced
by a certificate. |
| Charting: The use of charts
to analyze market behavior and anticipate future
price movements. Those who use charting as a trading
method plot such factors as high, low, and settlement
prices; average price movements; volume; and open
interest. Two basic price charts are bar charts and
point-and-figure charts. See Technical Analysis. |
| Cheap: Colloquialism implying
that a commodity is underpriced. |
| Cheapest to Deliver: A method
to determine which particular cash debt instrument
is most profitable to deliver against a futures contract. |
| Clear: The process by which
a clearinghouse maintains records of all trades and
settles margin flow on a daily mark-to-market basis
for its clearing member. |
| Clearinghouse: An agency or
separate corporation of a futures exchange that is
responsible for settling trading accounts, clearing
trades, collecting and maintaining margin monies,
regulating delivery, and reporting trading data.
Clearinghouses act as third parties to all futures
and options contracts acting as a buyer to every
clearing member seller and a seller to every clearing
member buyer. |
| Clearing Margin: Financial safeguards
to ensure that clearing members (usually companies
or corporations) perform on their customers' open
futures and options contracts. Clearing margins are
distinct from customer margins that individual buyers
and sellers of futures and options contracts are
required to deposit with brokers. See Customer Margin. |
| Clearing Member: A member of
an exchange clearinghouse. Memberships in clearing
organizations are usually held by companies. Clearing
members are responsible for the financial commitments
of customers that clear through their firm. |
| Closing Range: A range of prices
at which buy and sell transactions took place during
the market close. |
| COM Membership (CBOT): A Chicago
Board of Trade membership that allows an individual
to trade contracts listed in the commodity options
market category. |
| Commission Fee: A fee charged
by a broker for executing a transaction. Also referred
to as brokerage fee. |
| Commission House: See Futures
Commission Merchant (FCM). |
| Commodity: An article of commerce
or a product that can be used for commerce. In a
narrow sense, products traded on an authorized commodity
exchange. The types of commodities include agricultural
products, metals, petroleum, foreign currencies,
and financial instruments and indexes, to name a
few. |
| Commodity Credit Corporation (CCC):
A branch of the U.S. Department of Agriculture, established
in 1933, that supervises the government's farm loan
and subsidy programs. |
| Commodity Futures Trading Commission
(CFTC): A federal regulatory agency established
under the Commodity Futures Trading Commission
Act, as amended in 1974, that oversees futures
trading in the United States. The commission is
comprised of five commissioners, one of whom is
designated as chairman, all appointed by the President
subject to Senate confirmation, and is independent
of all cabinet departments. |
| Commodity Pool: An enterprise
in which funds contributed by a number of persons
are combined for the purpose of trading futures contracts
or commodity options. |
| Commodity Pool Operator (CPO):
An individual or organization that operates or solicits
funds for a commodity pool. |
| Commodity Trading Adviser (CTA):
A person who, for compensation or profit, directly
or indirectly advises others as to the value or the
advisability of buying or selling futures contracts
or commodity options. Advising indirectly includes
exercising trading authority over a customer's account
as well as providing recommendations through written
publications or other media. |
| Computerized Trading Reconstruction
(CTR) System: A Chicago Board of Trade computerized
surveillance program that pinpoints in any trade
the traders, the contract, the quantity, the price,
and time of execution to the nearest minute. |
| Consumer Price Index (CPI):
A major inflation measure computed by the U.S. Department
of Commerce. It measures the change in prices of
a fixed market basket of some 385 goods and services
in the previous month. |
| Convergence: A term referring
to cash and futures prices tending to come together
(i.e., the basis approaches zero) as the futures
contract nears expiration. |
| Conversion Factor: A factor
used to equate the price of T-bond and T-note futures
contracts with the various cash T-bonds and T-notes
eligible for delivery. This factor is based on the
relationship of the cash-instrument coupon to the
required 8 percent deliverable grade of a futures
contract as well as taking into account the cash
instrument's maturity or call. |
| Coupon: The interest rate on
a debt instrument expressed in terms of a percent
on an annualized basis that the issuer guarantees
to pay the holder until maturity. |
| Crop (Marketing) Year: The time
span from harvest to harvest for agricultural commodities.
The crop marketing year varies slightly with each
ag commodity, but it tends to begin at harvest and
end before the next year's harvest, e.g., the marketing
year for soybeans begins September 1 and ends August
31. The futures contract month of November represents
the first major new-crop marketing month, and the
contract month of July represents the last major
old-crop marketing month for soybeans. |
| Crop Reports: Reports compiled
by the U.S. Department of Agriculture on various
ag commodities that are released throughout the year.
Information in the reports includes estimates on
planted acreage, yield, and expected production,
as well as comparison of production from previous
years. |
| Cross-Hedging: Hedging a cash
commodity using a different but related futures contract
when there is no futures contract for the cash commodity
being hedged and the cash and futures markets follow
similar price trends (e.g., using soybean meal futures
to hedge fish meal). |
| Crush Spread: The purchase of
soybean futures and the simultaneous sale of soybean
oil and meal futures. See Reverse Crush. |
| Current Yield: The ratio of
the coupon to the current market price of the debt
instrument |
| Customer Margin: Within the
futures industry, financial guarantees required of
both buyers and sellers of futures contracts and
sellers of options contracts to ensure fulfillment
of contract obligations. FCMs are responsible for
overseeing customer margin accounts. Margins are
determined on the basis of market risk and contract
value. Also referred to as performance-bond margin.
See Clearing Margin. |
| Daily Trading Limit: The maximum
price range set by the exchange each day for a contract.
Day Traders: Speculators who take positions in futures
or options contracts and liquidate them prior to
the close of the same trading day. |
| Deferred (Delivery) Month: The
more distant month(s) in which futures trading is
taking place, as distinguished from the nearby (delivery)
month. |
| Deliverable Grades: The standard
grades of commodities or instruments listed in the
rules of the exchanges that must be met when delivering
cash commodities against futures contracts. Grades
are often accompanied by a schedule of discounts
and premiums allowable for delivery of commodities
of lesser or greater quality than the standard called
for by the exchange. Also referred to as contract
grades. |
| Delivery: The transfer of the
cash commodity from the seller of a futures contract
to the buyer of a futures contract. Each futures
exchange has specific procedures for delivery of
a cash commodity. Some futures contracts, such as
stock index contracts, are cash settled. |
| Delivery Day: The third day
in the delivery process at the Chicago Board of Trade,
when the buyer's clearing firm presents the delivery
notice with a certified check for the amount due
at the office of the seller's clearing firm. |
| Delivery Month: A specific month
in which delivery may take place under the terms
of a futures contract. Also referred to as contract
month. |
| Delivery Points: The locations
and facilities designated by a futures exchange where
stocks of a commodity may be delivered in fulfillment
of a futures contract, under procedures established
by the exchange. |
| Delta: A measure of how much
an option premium changes, given a unit change in
the underlying futures price. Delta often is interpreted
as the probability that the option will be in-the-money
by expiration. |
| Demand, Law of: The relationship
between product demand and price. |
| Differentials: Price differences
between classes, grades, and delivery locations of
various stocks of the same commodity. |
| Discount Method: A method of
paying interest by issuing a security at less than
par and repaying par value at maturity. The difference
between the higher par value and the lower purchase
price is the interest. |
| Discount Rate: The interest
rate charged on loans by the Federal Reserve to member
banks. Discretionary Account: An arrangement by which
the holder of the account gives written power of
attorney to another person, often his broker, to
make trading decisions. Also known as a controlled
or managed account. |
| Discretionary Account: An arrangement
by which the holder of the account gives written
power of attorney to person, often his broker, to
make trading decisions. Also known as a controlled
or managed account. |
| Econometrics: The application
of statistical and mathematical methods in the field
of economics to test and quantify economic theories
and the solutions to economic problems. |
| Equilibrium Price: The market
price at which the quantity supplied of a commodity
equals the quantity demanded. |
| Eurodollars: U.S. dollars on
deposit with a bank outside of the United States
and, consequently, outside the jurisdiction of the
United States. The bank could be either a foreign
bank or a subsidiary of a U.S. bank. |
| European Terms: A method of
quoting exchange rates, which measures the amount
of foreign currency needed to buy one U.S. dollar,
i.e., foreign currency unit per dollar. See Reciprocal of European Terms. |
| Exchange For Physicals (EFP):
A transaction generally used by two hedgers who want
to exchange futures for cash positions. Also referred
to as against actuals or versus cash. |
| Exercise: The action taken by
the holder of a call option if he wishes to purchase
the underlying futures contract or by the holder
of a put option if he wishes to sell the underlying
futures contract. |
| Expanded Trading Hours: Additional
trading hours of specific futures and options contracts
at the Chicago Board of Trade that overlap with business
hours in other time zones. |
| Expiration Date: Options on
futures generally expire on a specific date during
the month preceding the futures contract delivery
month. For example, an option on a March futures
contract expires in February but is referred to as
a March option because its exercise would result
in a March futures contract position. |
| Face Value: The amount of money
printed on the face of the certificate of a security;
the original dollar amount of indebtedness incurred. |
| Federal Funds: Member bank deposits
at the Federal Reserve; these funds are loaned by
member banks to other member banks. |
| Federal Funds Rate: The rate
of interest charged for the use of federal funds. |
| Federal Housing Administration (FHA):
A division of the U.S. Department of Housing and
Urban Development that insures residential mortgage
loans and sets construction standards. |
| Federal Reserve System: A central
banking system in the United States, created by the
Federal Reserve Act in 1913, designed to assist the
nation in attaining its economic and financial goals.
The structure of the Federal Reserve System includes
a Board of Governors, the Federal Open Market Committee,
and 12 Federal Reserve Banks. |
| Feed Ratio: A ratio used to
express the relationship of feeding costs to the
dollar value of livestock. See Hog/Corn Ratio and
Steer/Corn Ratio. |
| Fill-or-Kill: A customer order
that is a price limit order that must be filled immediately
or canceled. |
| Financial Analysis Auditing Compliance
Tracking System (FACTS): The National Futures
Association's computerized system of maintaining
financial records of its member firms and monitoring
their financial conditions. |
| Financial Instrument: There
are two basic types: (1) a debt instrument, which
is a loan with an agreement to pay back funds with
interest; (2) an equity security, which is a share
or stock in a company. |
| First Notice Day: According
to Chicago Board of Trade rules, the first day on
which a notice of intent to deliver a commodity in
fulfillment of a given month's futures contract can
be made by the clearinghouse to a buyer. The clearinghouse
also informs the sellers who they have been matched
up with. |
| Floor Broker (FB): An individual
who executes orders for the purchase or sale of any
commodity futures or options contract on any contract
market for any other person. |
| Floor Trader (FT): An individual
who executes trades for the purchase or sale of any
commodity futures or options contract on any contract
market for such individual's own account. |
| Forex Market: An over-the-counter
market where buyers and sellers conduct foreign exchange
business by telephone and other means of communication.
Also referred to as foreign exchange market. |
| Forward (Cash) Contract: A cash
contract in which a seller agrees to deliver a specific
cash commodity to a buyer sometime in the future.
Forward contracts, in contrast to futures contracts,
are privately negotiated and are not standardized. |
| Full Carrying Charge Market:
A futures market where the price difference between
delivery months reflects the total costs of interest,
insurance, and storage. |
| Full Membership (CBOT): A Chicago
Board of Trade membership that allows an individual
to trade all futures and options contracts listed
by the exchange. |
| Fundamental Analysis: A method
of anticipating future price movement using supply
and demand information. |
| Futures Commission Merchant (FCM):
An individual or organization that solicits or accepts
orders to buy or sell futures contracts or options
on futures and accepts money or other assets from
customers to support such orders. Also referred to
as commission house or wire house. |
| Futures Contract: A legally
binding agreement, made on the trading floor of a
futures exchange, to buy or sell a commodity or financial
instrument sometime in the future. Futures contracts
are standardized according to the quality, quantity,
and delivery time and location for each commodity.
The only variable is price, which is discovered on
an exchange trading floor. |
| Futures Exchange: A central
marketplace with established rules and regulations
where buyers and sellers meet to trade futures and
options on futures contracts. |
| Gamma: A measurement of how
fast delta changes, given a unit change in the underlying
futures price. |
| GIM Membership (CBOT): A Chicago
Board of Trade membership that allows an individual
to trade all futures contracts listed in the government
instrument market category. |
| GLOBEX®: A global after-hours
electronic trading system. |
| Grain Terminal: Large grain
elevator facility with the capacity to ship grain
by rail and/or barge to domestic or foreign markets. |
| Gross Domestic Product (GDP):
The value of all final goods and services produced
by an economy over a particular time period, normally
a year. |
| Gross National Product (GNP):
Gross Domestic Product plus the income accruing to
domestic residents as a result of investments abroad
less income earned in domestic markets accruing to
foreigners abroad. |
| Gross Processing Margin (GPM):
The difference between the cost of soybeans and the
combined sales income of the processed soybean oil
and meal. |
| Hedger: An individual or company
owning or planning to own a cash commodity corn,
soybeans, wheat, U.S. Treasury bonds, notes, bills,
etc. and concerned that the cost of the commodity
may change before either buying or selling it in
the cash market. A hedger achieves protection against
changing cash prices by purchasing (selling) futures
contracts of the same or similar commodity and later
offsetting that position by selling (purchasing)
futures contracts of the same quantity and type as
the initial transaction. |
| Hedging: The practice of offsetting
the price risk inherent in any cash market position
by taking an equal but opposite position in the futures
market. Hedgers use the futures markets to protect
their businesses from adverse price changes. See
Selling (Short) Hedge and Purchasing (Long) Hedge. |
| High: The highest price of the
day for a particular futures contract. |
| Hog/Corn Ratio: The relationship
of feeding costs to the dollar value of hogs. It
is measured by dividing the price of hogs ($/hundredweight)
by the price of corn ($/bushel). When corn prices
are high relative to pork prices, fewer units of
corn equal the dollar value of 100 pounds of pork.
Conversely, when corn prices are low in relation
to pork prices, more units of corn are required to
equal the value of 100 pounds of pork. See Feed Ratio. |
| Horizontal Spread: The purchase
of either a call or put option and the simultaneous
sale of the same type of option with typically the
same strike price but with a different expiration
month. Also referred to as a calendar spread. |
| IDEM Membership (CBOT): A Chicago
Board of Trade membership of trading privileges for
futures contracts in the index, debt, and energy
markets category (gold, municipal bond index, 30-day
fed funds, and stock index futures). |
| Intercommodity Spread: The purchase
of a given delivery month of one futures market and
the simultaneous sale of the same delivery month
of a different, but related, futures market. |
| Interdelivery Spread: The purchase
of one delivery month of a given futures contract
and simultaneous sale of another delivery month of
the same commodity on the same exchange. Also referred
to as an intramarket or calendar spread. |
| Intermarket Spread: The sale
of a given delivery month of a futures contract on
one exchange and the simultaneous purchase of the
same delivery month and futures contract on another
exchange. |
| In-the-Money Option: An option
having intrinsic value. A call option is in-the-money
if its strike price is below the current price of
the underlying futures contract. A put option is
in-the-money if its strike price is above the current
price of the underlying futures contract. See Intrinsic Value. |
| Introducing Broker (IB): A person
or organization that solicits or accepts orders to
buy or sell futures contracts or commodity options
but does not accept money or other assets from customers
to support such orders. |
| Inverted Market: A futures market
in which the relationship between two delivery months
of the same commodity is abnormal. |
| Invisible Supply: Uncounted
stocks of a commodity in the hands of wholesalers,
manufacturers, and producers that cannot be identified
accurately; stocks outside commercial channels but
theoretically available to the market. |
| Lagging Indicators: Market indicators
showing the general direction of the economy and
confirming or denying the trend implied by the leading
indicators. Also referred to as concurrent indicators. |
| Last Trading Day: According
to the Chicago Board of Trade rules, the final day
when trading may occur in a given futures or options
contract month. Futures contracts outstanding at
the end of the last trading day must be settled by
delivery of the underlying commodity or securities
or by agreement for monetary settlement (in some
cases by EFPs). |
| Leading Indicators: Market indicators
that signal the state of the economy for the coming
months. Some of the leading indicators include: average
manufacturing workweek, initial claims for unemployment
insurance, orders for consumer goods and material,
percentage of companies reporting slower deliveries,
change in manufacturers' unfilled orders for durable
goods, plant and equipment orders, new building permits,
index of consumer expectations, change in material
prices, prices of stocks, change in money supply. |
| Leverage: The ability to control
large dollar amounts of a commodity with a comparatively
small amount of capital. |
| Limit Order: An order in which
the customer sets a limit on the price and/or time
of execution. |
| Limits: See Position Limit,
Price Limit, Variable Limit. |
| Linkage: The ability to buy
(sell) contracts on one exchange (such as the Chicago
Mercantile Exchange) and later sell (buy) them on
another exchange (such as the Singapore International
Monetary Exchange). |
| Liquid: A characteristic of
a security or commodity market with enough units
outstanding to allow large transactions without a
substantial change in price. Institutional investors
are inclined to seek out liquid investments so that
their trading activity will not influence the market
price. |
| Liquidate: Selling (or purchasing)
futures contracts of the same delivery month purchased
(or sold) during an earlier transaction or making
(or taking) delivery of the cash commodity represented
by the futures contract. See Offset. |
| Liquidity Data Bank®(LDB®):
A computerized profile of CBOT market activity, used
by technical traders to analyze price trends and
develop trading strategies. There is a specialized
display of daily volume data and time distribution
of prices for every commodity traded on the Chicago
Board of Trade. |
| Loan Program: A federal program
in which the government lends money at preannounced
rates to farmers and allows them to use the crops
they plant for the upcoming crop year as collateral.
Default on these loans is the primary method by which
the government acquires stocks of agricultural commodities. |
| Loan Rate: The amount lent per
unit of a commodity to farmers. |
| Long: One who has bought futures
contracts or owns a cash commodity. Long Hedge: See Purchasing Hedge. |
| Low: The lowest price of the
day for a particular futures contract. |
| Maintenance Margin: A set minimum
margin (per outstanding futures contract) that a
customer must maintain in his margin account. |
| Managed Futures: Represents
an industry comprised of professional money managers
known as commodity trading advisors who manage client
assets on a discretionary basis, using global futures
markets as an investment medium. |
| Margin: See Clearing Margin
and Customer Margin. |
| Margin Call: A call from a clearinghouse
to a clearing member, or from a brokerage firm to
a customer, to bring margin deposits up to a required
minimum level. |
| Market Information Data Inquiry
System (MIDIS): Historical Chicago Board of
Trade price, volume, open interest data and other
market information accessible by computers within
the Chicago Board of Trade building. |
| Market Order: An order to buy
or sell a futures contract of a given delivery month
to be filled at the best possible price and as soon
as possible. |
| Market Price Reporting and Information
System (MPRIS): The Chicago Board of Trade's
computerized price-reporting system. |
| Market Profile®: A Chicago
Board of Trade information service that helps technical
traders analyze price trends. Market Profile consists
of the Time and Sales ticker and the Liquidity Data
Bank. |
| Market Reporter: A person employed
by the exchange and located in or near the trading
pit who records prices as they occur during trading. |
| Marking-to-Market: To debit
or credit on a daily basis a margin account based
on the close of that day's trading session. In this
way, buyers and sellers are protected against the
possibility of contract default. |
| Minimum Price Fluctuation: See Tick. |
| Money Supply: The amount of
money in the economy, consisting primarily of currency
in circulation plus deposits in banks: M-1–U.S.
money supply consisting of currency held by the public,
traveler's checks, checking account funds, NOW and
super-NOW accounts, automatic transfer service accounts,
and balances in credit unions. M-2–U.S. money
supply consisting of M-1 plus savings and small time
deposits (less than $100,000) at depository institutions,
overnight repurchase agreements at commercial banks,
and money market mutual fund accounts. M-3 –U.S.
money supply consisting of M-2 plus large time deposits
($100,000 or more) at depository institutions, repurchase
agreements with maturities longer than one day at
commercial banks, and institutional money market
accounts. |
| Moving-Average Charts: A statistical
price analysis method of recognizing different price
trends. A moving average is calculated by adding
the prices for a predetermined number of days and
then dividing by the number of days. |
| Municipal Bonds: Debt securities
issued by state and local governments, and special
districts and counties. |
| National Futures Association (NFA):
An industrywide, industry-supported, self-regulatory
organization for futures and options markets. The
primary responsibilities of the NFA are to enforce
ethical standards and customer protection rules,
screen futures professionals for membership, audit
and monitor professionals for financial and general
compliance rules, and provide for arbitration of
futures-related disputes. |
| Nearby (Delivery) Month: The
futures contract month closest to expiration. Also
referred to as spot month. |
| Notice Day: According to Chicago
Board of Trade rules, the second day of the three-day
delivery process when the clearing corporation matches
the buyer with the oldest reported long position
to the delivering seller and notifies both parties.
See First Notice Day. |
| Offer: An expression indicating
one's desire to sell a commodity at a given price;
opposite of bid. |
| Offset: Taking a second futures
or options position opposite to the initial or opening
position. See Liquidate. |
| OPEC: Organization of Petroleum
Exporting Countries, emerged as the major petroleum
pricing power in1973, when the ownership of oil production
in the Middle East transferred from the operating
companies to the governments of the producing countries
or to their national oil. Members are: Algeria, Ecuador,
Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria,
Qatar, Saudi Arabia, the United Arab Emirates, and
Venezuela. |
| Opening Range: A range of prices
at which buy and sell transactions took place during
the opening of the market. |
| Open Interest: The total number
of futures or options contracts of a given commodity
that have not yet been offset by an opposite futures
or option transaction nor fulfilled by delivery of
the commodity or option exercise. Each open transaction
has a buyer and a seller, but for calculation of
open interest, only one side of the contract is counted. |
| Open Market Operation: The buying
and selling of government securities Treasury bills,
notes, and bonds by the Federal Reserve. |
| Open Outcry: Method of public
auction for making verbal bids and offers in the
trading pits or rings of futures exchanges. |
| Option: A contract that conveys
the right, but not the obligation, to buy or sell
a particular item at a certain price for a limited
time. Only the seller of the option is obligated
to perform. |
| Option Buyer: The purchaser
of either a call or put option. Option buyers receive
the right, but not the obligation, to assume a futures
position. Also referred to as the holder. |
| Option Premium: The price of
an option the sum of money that the option buyer
pays and the option seller receives for the rights
granted by the option. |
| Option Seller: The person who
sells an option in return for a premium and is obligated
to perform when the holder exercises his right under
the option contract. Also referred to as the writer. |
| Option Spread: The simultaneous
purchase and sale of one or more options contracts,
futures, and/or cash positions. |
| Original Margin: The amount
a futures market participant must deposit into his
margin account at the time he places an order to
buy or sell a futures contract. Also referred to
as initial margin. |
| Out-of-the-Money Option: An
option with no intrinsic value, i.e., a call whose
strike price is above the current futures price or
a put whose strike price is below the current futures
price. |
| Over-the-Counter (OTC) Market:
A market where products such as stocks, foreign currencies,
and other cash items are bought and sold by telephone
and other means of communication. |
| P&S (Purchase and Sale) Statement:
A statement sent by a commission house to a customer
when his futures or options on futures position has
changed, showing the number of contracts bought or
sold, the prices at which the contracts were bought
or sold, the gross profit or loss, the commission
charges, and the net profit or loss on the transactions. |
| Par: The face value of a security.
For example, a bond selling at par is worth the same
dollar amount it was issued for or at which it will
be redeemed at maturity. |
| Payment-In-Kind (PIK) Program:
A government program in which farmers who comply
with a voluntary acreage-control program and set
aside an additional percentage of acreage specified
by the government receive certificates that can be
redeemed for government-owned stocks of grain. |
| Performance Bond Margin: The
amount of money deposited by both a buyer and seller
of a futures contract or an options seller to ensure
performance of the term of the contract. Margin in
commodities is not a payment of equity or down payment
on the commodity itself, but rather it is a security
deposit. See Customer Margin and Clearing Margin. |
| Pit: The area on the trading
floor where futures and options on futures contracts
are bought and sold. Pits are usually raised octagonal
platforms with steps descending on the inside that
permit buyers and sellers of contracts to see each
other. |
| Point-and-Figure Charts: Charts
that show price changes of a minimum amount regardless
of the time period involved. |
| Position: A market commitment.
A buyer of a futures contract is said to have a long
position and, conversely, a seller of futures contracts
is said to have a short position. |
| Position Day: According to the
Chicago Board of Trade rules, the first day in the
process of making or taking delivery of the actual
commodity on a futures contract. The clearing firm
representing the seller notifies the Board of Trade
Clearing Corporation that its short customers want
to deliver on a futures contract. |
| Position Limit: The maximum
number of speculative futures contracts one can hold
as determined by the Commodity Futures Trading Commission
and/or the exchange upon which the contract is traded.
Also referred to as trading limit. |
| Position Trader: An approach
to trading in which the trader either buys or sells
contracts and holds them for an extended period of
time. |
| Premium: (1) The additional
payment allowed by exchange regulation for delivery
of higher-than-required standards or grades of a
commodity against a futures contract. (2) In speaking
of price relationships b | |
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