A

Arbitrage
The simultaneous purchase and sale of an asset in order to profit from a difference in price. It is a trade thatprofits by exploiting price differences of identical or similar financial instruments, on different markets.

Ask
A motion to sell (offer), indicating a willingness to sell a futures contract at a given price.

B

Back Month
A type of futures contract that expires anytime past the current contract month (also referred to as a “far month contract”).

Basis
The difference between the current cash price and the futures price of the same commodity. The basis is determined by the costs of actually holding the commodity versus contracting to buy it for a later delivery (i.e. a futures contract). The basis is affected by other influences as well, such as unusual situations in supply or demand. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.

Broker
An individual or firm that arranges transactions between a buyer and a seller, and gets commissions when the deal is executed. 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 or Associated Person – the person who deals with customers in the offices of Futures Commission Merchants; or (3) the Futures Commission Merchant.

Bid
A motion to buy (purchase price), indicating a willingness to buy a futures contract at a given price.

Bear
One who expects price to decline.

Bear Market
A market in which prices are declining.

Bull
One who expects prices to rise.

Bull Market
A market in which prices are rising.

C

Carrying Charge (Cost of Carry)
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 necessary to buy the instrument. (See Basis.)

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 Market
A place where people buy and sell the actual commodities, i.e., grain elevator, bank, etc. See Spot and Forward Contract.

Cash Price
The price of the actual physical commodity that a futures contracts is based upon.

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.

Contract
Unit of trading for a financial or commodity future. Also, actual bilateral agreement between the parties (buyer and seller) of a futures or options on futures transaction as defined by an futures exchange.

D

Daily Trading Limit
The maximum price range set by the exchange each day for a contract. A Trading Limit does not halt trading, but rather, limits how far the price can move in a given day.

Day Order
An order that is placed for execution during only one trading session. If the order cannot be executed (filled) that day, it automatically expires at the close of the trading session.

Day Trade
The purchase and sale of a futures or an options contract in the same day, thus ending the day with no established position in the market or being flat.

Day Traders
Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.

Day Trading
(see Day Trade)

Deferred Month (AKA: Back Months)
The more distant month(s) in which futures trading is taking place, as distinguished from the nearby (delivery) month.

Deliverable Grades (AKA: Contract Grades)
The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the standard called for by the exchange.

Delivery
The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchanges has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.

Delivery Month
A specific month in which delivery may take place under the terms of a futures contract. Also referred to as contract month or Front 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.

E

Exchange
(See Futures Exchange)

F

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 seller who they have been matched up with.

Forex Futures
A shortened term for foreign exchange futures, also known as FX or currency futures. Forex futures are exchange-traded contracts to buy or sell a specified amount of a currency on a set future date, at a specified price.

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.

Front Month
(See Delivery Month)

Futures
A term used to designate all contracts covering the purchase and sale of financial instruments or physical commodities for future delivery on a commodity futures exchange.

Futures Commission Merchant
A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection with solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades or contracts. The FCM must be licensed by the CFTC.

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.

Futures Exchange
A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.

G

Good till Canceled (GTC)
An order worked by a broker until it can be filled or until canceled. (see Open Order)

H

Hedge
The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Usually it involves opposite positions in the cash market and futures market at the same time.

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.

I

Initial Margin
The minimum value on deposit in your account to establish a new futures or options position, or to add to an existing position. Initial margin amount levels differ by contract. Lind-Waldock sets the level of Initial Margin required, and it may change at any time at Lind-Waldock’s discretion. Increases or decreases in Initial Margin levels reflect anticipated or actual changes in market volatility. Also called “Initial Performance Bond.”

L

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).

Limit Move
(See Daily Trading Limit.).

Limit Order
An order given for an options or futures trade specifying a certain maximum (or minimum) price, beyond which the order (buy or sell) is not to be executed. This is an Order Type in LindConnect for some contracts.

Leverage
The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.

Limit Order
See Price Limit Order.

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.

Liquidation
Any transaction that offsets or closes out a long or short futures position.

Long
(1) One who has bought a futures contract to establish a market position; (2) a market position that obligates the holder to take delivery; (3) one who owns an inventory of commodities. See Short.

Long Hedge
The purchase of a futures contract in anticipation of an actual purchase in the cash market. Used by processors or exporters as protection against an advance in the cash price. (See hedge, short hedge.)

M

Maintenance Margin
The minimum value that you must keep in your account in order to continue to hold a position. The Maintenance Margin is typically less than the Initial Margin, and also differs by contract. If your account falls below the Maintenance Margin requirement, you will receive a margin call. If you wish to continue to hold the position, you will be required to restore your account to the full Initial Margin level (not to the Maintenance Margin level). Also known as the Maintenance Performance Bond.

Managed Futures
Represents an asset class comprised of professional money managers known as commodity trading advisors (CTA’s) who manage client assets on a discretionary basis, using global futures markets as an investment medium.

Margin
See Performance Bond.

Margin Call
A demand from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a minimum level required to support the positions held. This can be done by either depositing more funds or offsetting some or all of the positions held.

Mark-To-Market (Marked-To-Market)
A daily accounting entry that is the bedrock of regulated futures bookkeeping. It’s the end-of-day adjustment made to trading accounts to reflect profits and losses on existing positions. In other words, winnings are credited and immediately available to the account and losses are debited and immediately owed. This brings integrity to the marketplace because participants are not allowed to trade unless funds are available to cover the positions.

Market Order (MKT)
An order to buy or sell a specified commodity, including quantity and delivery month at the best possible prices available, as soon as possible.

Market-If-Touched (M.I.T.) Order
A price order that automatically becomes a market order if the price is reached.

Market on Close (MOC)
An order to buy or sell at the end of the trading session at a price within the closing range of prices. This is an Order Type in LindConnect for some contracts.

O

Offer
Indicates a willingness to sell a futures contract at a given price. Also called “Ask” (See Bid).

Offset
Taking a second futures or options position opposite to the initial or opening position. This means selling, if one has bought, or buying, if one has sold, a futures or option on a futures contract. (See Liquidate)

Open Order
An order to a broker that is good until it is canceled or executed. (See GTC)

Open Outcry
Method of public auction for making verbal bids and offers in the trading pits or rings of futures exchanges.

Or Better Order (OB)
A type of a limit order in which the market is at or better than the limit specified. The term is often used to help clarify that the order was not mistakenly given as a Limit when it looks like it should be a Stop Order.

P

Performance Bond (Margin)
Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole.

Pit
A specially constructed arena on the trading floor of some exchanges where trading in a futures contract is conducted. On some exchanges the term “ring” designates the trading area for a commodity.

Position
A market commitment. A buyer of an initial futures contract is said to have a long position and, conversely, a seller of an initial futures contract is said to have a short position.

Price Discovery
The generation of information about “future” cash market prices through the futures markets. It has been said that futures markets are often the place of “original price discovery” because that’s where the buyers and sellers are brought together to determine the price. As in any auction, the last price is considered to reflect the sum total of opinions about what price an item should be valued.

Price Limit Order
An order that specifies the highest price at which a bidder will pay for a contract, or the lowest price a seller will sell a contract. This type of order is used to “limit” how much the trader is willing to “give in” on price to get the order filled.

S

Settlement Price
The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm’s net gains or losses, margin requirements, and the next day’s price limits, based on each futures and options contract settlement price. If there is a closing range of prices, the settlement price is determined by averaging those prices. Also referred to as Settle or Closing Price. Thinly traded options may be traded at a theoretical value.

Scalp
To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, usually within the same day, hour or even just a few minutes.

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.

Speculator
One who attempts to anticipate price changes and, through buying and selling futures contracts, aims to make profits. A speculator does not use the futures market in connection with the production, processing, marketing or handling of a product.

Spot
Market of immediate delivery of and payment for the product.

Spread
The price difference between two related markets or commodities.

Spreading
The simultaneous buying and selling of two related markets in the expectation that a profit will be made when the position is offset. Examples include: buying one futures contract and selling another futures contract of the same commodity but different delivery month; buying and selling the same delivery month of the same commodity on different futures exchanges; buying a given delivery month of one futures market and selling the same delivery month of a different, but related, futures market.

Stop Order
Sometimes called a Stop Loss Order, although it can be used to initiate a new position as well as offset an existing position. It’s an order to buy or sell when the market reaches a specified point. A stop order to buy becomes a market order when the futures contract trades (or is bid) at or above the stop price. A stop order to sell becomes a market order when the futures contract trades (or is offered) at or below the stop price. An order to buy or sell at the market when and if a specified price is reached.

Stop Limit
A variation of a stop order. A stop with limit order to buy becomes a limit order at the stop price when the futures contract trades (or is bid) at or above the stop price. A stop order to sell becomes a limit order at the stop price when the futures contract trades (or is offered) at or below the stop price. This is an Order Type in LindConnect for some contracts.

T

Tick
Smallest increment of price movement possible in trading a given contract.

List from https://www.purefinancialacademy.com

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