investment terms advice law advice insurance advice community law advice case evaluation ask lawyer amp legal topics legal topics accident law bankruptcy law business law criminal law employment labor law estate planning family law financial law general practice government law immigration law insurance law intellectual property litigation malpractice law personal injury real estate law tax law small claims admiralty maritime aviation law financial law topics financial law topics banking lawsecurities lawcommodities lawbroker disputes advice law advice financial law banking law current investment terms written freeadvice staff abandon act option holder electing exercise offset option accommodation trading non competitive trading entered trader usually assist illegal trades actuals physical cash commodity distinguished commodity futures contract see cash spot commodityaggregation principle futures positions owned controlled trader group traders acting concert combined determine reporting status compliance speculative limits allowances discounts premiums allowed grades locations commodity lower higher par basis grade location specified futures contract see differentials approved delivery facility bank stockyard mill storehouse plant elevator depository authorized exchange delivery commodities tendered futures contracts arbitrage simultaneous purchase cash commodities futures market sale cash commodities futures different market profit discrepancy prices includes aspects hedging see spread switch asian option option payoff depends average price underlying asset portion life option assignable contract allows holder convey rights third party exchange traded contracts assignable associated person person associated futures commission merchant introducing broker commodity trading advisor commodity pool operator leverage transaction merchant partner officer employee consultant agent person occupying similar status performing similar functions capacity involves solicitation acceptance orders discretionary accounts participation commodity pool clerical capacity supervision person persons engaged market order sell futures contract price obtainable order reaches trading floor called market order money exercise price the current trading price underlying commodity option money audit trail record trading identifying example brokers participating transaction firms clearing trade terms time trade ultimately applicable customers involved back months futures delivery months expiration delivery dates furthest future futures delivery months spot nearby delivery month backpricing fixing price commodity commitment purchase advance buyer fix price relative monthly periodic delivery futures markets backwardation market situation futures prices progressively lower distant delivery months instance gold quotation february ounce june ounce backwardation months january ounce backwardation opposite contango see inverted market acceptance draft bill exchange accepted bank accepting institution guarantees payment extensively foreign trade transactions basis difference spot cash price commodity price nearest futures contract related commodity basis usually computed relation futures contract expire may reflect different time periods product forms qualities locations basis grade grade commodity standard par grade futures contract basis point measurement change yield debt security basis point equals percent basis quote offer sale cash commodity terms difference futures price cents december corn basis risk risk associated unexpected widening narrowing basis time hedge position established time lifted bear expects decline prices opposite bull news item considered bearish expected result lower prices bear market market prices declining bear spread simultaneous purchase sale futures contracts related commodities intention profiting decline prices time limiting potential loss expectation materialize agricultural products accomplished selling nearby delivery buying deferred delivery bear vertical spread strategy employed investor expects decline commodity price time seeks limit potential loss expectation realized spread requires simultaneous purchase sale options class expiration date different strike prices example call options spread purchased option higher exercise price option sold beta beta coefficient measure variability rate return value stock portfolio compared market bid offer specific quantity commodity stated price blackboard trading practice selling commodities blackboard wall commodity exchange black scholes model option pricing formula initially developed black scholes securities options refined black options futures board broker system system trading individual member exchange nominee member designated board broker particular commodity responsibility executing orders left members floor providing price quotations maintaining orderliness trading crowd board broker may trade account account affiliated organization see crowd systems specialist system board order see market touched order board trade exchange association incorporated unincorporated persons engaged business buying selling commodity receiving sale consignment boiler room enterprise operated inexpensive low rent quarters term boiler room uses high pressure sales tactics generally telephone possibly false misleading solicit generally unsophisticated investors booking basis forward pricing sales arrangement cash price determined buyer seller specified time time previously agreed basis applied current futures quotation book transfer series accounting bookkeeping entries settle series cash market transactions box transaction option position holder establishes long call short put strike price short call long put strike price contract month commodity break rapid sharp price decline broker person paid fee commission executing sell orders customer commodity futures trading term may refer floor broker person executes orders trading floor exchange account executive associated person registered commodity representative man person deals customers offices futures commission merchants futures commission merchant broker association exchange members share responsibility executing customer orders access unfilled customer orders result common employment types relationships share profits losses associated brokerage trading activity bucketing directly indirectly opposite side order account account broker interest open competitive execution order exchange bucket shop brokerage enterprise books takes opposite side order having executed exchange bulge rapid advance prices bull expects rise prices opposite bear news item considered bullish portends higher prices bullion bars ingots precious metals usually cast standardized sizes bull market market prices rising bull spread simultaneous purchase sale futures contracts related commodities intention profiting rise prices time limiting potential loss expectation wrong agricultural commodities accomplished buying nearby delivery selling deferred bull vertical spread strategy investor expects price commodity time seeks limit potential loss judgment error strategy involves simultaneous purchase sale options class expiration date different strike prices example call options spread purchased option lower exercise strike price sold option buoyant market prices tendency rise easily considerable show strength butterfly spread legged spread futures options option spread options expiration date differ strike prices example butterfly spread soybean call options consist short calls strike price long call strike price long call strike price buyer market participant takes long futures position buys option option buyer called taker holder owner call see call market condition market abundance goods available buyers afford selective may able price previously prevailed see market buying hedge long hedge hedging transaction futures contracts bought protect possible increases cost commodities see hedging sell close sell the trading session closing price range sell opening sell trading session open price range amp cost freight paid point destination included price quoted call period opening close futures markets price futures contract established auction call generally applies cotton called call sale purchase specified quantity specific grade commodity fixed number points specified delivery month futures price buyer allowed period time fix price purchasing future account seller telling seller wishes fix price call called call purchase the call seller right determine time fix price option contract giving buyer right obligation purchase commodity enter long futures position requirement financial instrument returned issuer prior maturity principal accrued interest paid return call cotton cotton bought sold call see call called term exercised option call writer call deliver indicated underlying commodity option exercised called call option contract entitles buyer taker fixed quantity commodity stipulated basis striking price time expiration option buyer pays premium seller grantor contract call option bought expectation rise prices see put option call rule exchange regulation official bid price cash commodity competitively established close trading holds opening exchange capping effecting commodity security transactions shortly prior expiration date depressing preventing rise price commodity security previously written call options expire worthless premium writer received protected carrying broker member commodity exchange usually futures commission merchant broker customer elects clear part trades carrying charges cost storing physical commodity holding financial instrument period time includes insurance storage interest invested funds incidental costs carrying charge market higher futures prices successive contract maturity carrying charge adequate reimburse holder called full charge see negative carry positive carry contango cash commodity physical actual commodity distinguished futures contract called spot commodity actuals cash forward sale see forward contracting cash market market cash commodity contrasted futures contract form organized self regulated central market commodity exchange decentralized counter market local organization grain elevator meat processor provides market small region cash price price marketplace actual cash spot commodities delivered customary market channels cash settlement method settling certain futures option contracts seller short pays buyer long cash value commodity traded procedure specified contract ccc see commodity credit corporation see certificate deposit cea see commodity exchange authority certificate deposit time deposit specific maturity evidenced certificate large denomination cds typically negotiable cftc see commodity futures trading commission cfo cancel order certificated certified stocks stocks commodity inspected quality deliverable futures contracts stored delivery points designated regular acceptable delivery commodity exchange grain called stocks deliverable position see deliverable stocks changer clearing member mid america commodity exchange mce futures exchange fee assume opposite side transaction mce spread position mce futures exchange trades identical larger contract service changer provides liquidity mce economical mechanism arbitrage markets charting graphs charts technical analysis futures markets plot trends price movements average movements price volume trading open interest see technical analysis chartist technical trader reacts signals derived graphs price movements cheapest deliver usually refers selection bonds deliverable expiring bond futures contract chooser option option transacted present prespecified future date chosen put call option churning excessive trading account broker control account purpose generating commissions disregarding interests customer circuit breakers system trading halts price limits equities derivative markets designed provide cooling period large intraday market movements known term circuit breaker context report presidential task force market mechanisms january recommended circuit breakers adopted following market break october cost insurance freight paid point destination included price quoted class options options type puts calls covering underlying futures contract physical commodity march call strike price may call strike price clearing procedure clearing house association buyer seller futures contract seller buyer assumes responsibility protecting buyers sellers financial loss assuring performance contract clearing house adjunct division commodity exchange transactions executed floor exchange settled charged assuring proper conduct delivery procedures adequate financing trading clearing member member clearing house association trades non clearing member registered eventually settled clearing member clearing price see settlement price close the period the trading session officially designated exchange transactions considered close see call closing liquidating existing long short futures option position equal opposite transaction known offset closing price range price price range recorded trading takes place final moments activity officially designated close combination puts calls held long short different strike prices expirations commercial entity involved production processing merchandising commodity commercial grain stocks domestic grain store public private elevators important markets grain afloat vessels barges lake seaboard ports commercial paper short term promissory notes issued bearer form large corporations maturities ranging days notes unsecured commercial papers market generally dominated large corporations impeccable credit ratings commission charge commission house buying selling commodities cftc commitments see open interest commodity credit corporation government owned corporation established assist american agriculture major operations include price support programs foreign sales export credit programs agricultural commodities commodity exchange authority regulatory agency department agriculture established administer commodity exchange act prior predecessor commodity futures trading commission commodity exchange commission commission consisting secretary agriculture secretary commerce attorney general responsible administering commodity exchange act prior commodity futures trading commission cftc federal regulatory agency established cftc act administer commodity exchange act commodity linked bond bond payment investor dependent price level commodities crude oil gold silver maturity commodity option see option puts calls commodity pool investment trust syndicate similar form enterprise operated purpose trading commodity futures option contracts commodity pool operator cpo individuals firms businesses similar investment trusts syndicates solicit accept funds securities property purpose trading commodity futures contracts commodity options commodity price index index average may weighted selected commodity prices intended representative markets general specific subset commodities example grains livestock commodity trading advisor cta individuals firms pay issue analyses reports concerning commodities including advisability trading commodity futures options congestion market situation shorts attempting cover positions unable adequate supply contracts provided longs willing liquidate sellers willing enter market sharply higher prices technical analysis period time characterized repetitious limited price fluctuations consignment shipment producer dealer agent understanding commodities question cared sold highest obtainable price title merchandise shipped consignment rests shipper goods disposed agreement contango market situation prices succeeding delivery months progressively higher nearest delivery month opposite backwardation contract term reference describing unit trading commodity future option agreement sell specified commodity detailing amount grade product date contract mature deliverable contract grades grades commodity officially approved exchange deliverable settlement futures contract contract market board trade exchange designated commodity futures trading commission trade futures options commodity exchange act futures contract corn contract market contract month see delivery month contract unit actual amount commodity represented contract controlled account account trading directed owner called managed account discretionary account convergence tendency prices physicals futures approach usually delivery month called narrowing basis conversion trading options futures contracts position created selling call option buying put option buying underlying futures contract options strike price expiration corner securing relative control commodity security price manipulated extreme situation obtaining contracts requiring delivery commodities securities available delivery corn hog ratio see feed ratio cost tender total various charges incurred commodity certified delivered futures contract counter trend trading technical analysis method trader takes position contrary current market direction anticipation change direction coupon coupon rate fixed dollar amount interest payable annum stated percentage principal value usually payable semiannual installments cover purchasing futures offset short position short covering see offset liquidation hand physical commodity short futures leverage sale acquire commodity deliverable short sale covered option short call put option position covered sale purchase underlying futures contract physical commodity example case options futures contracts covered call short call position combined long futures position covered put short put position combined short futures position cox ross rubinstein option pricing model option pricing logarithm developed cox ross rubinstein adopted include effects included black scholes model early exercise price supports cpo see commodity pool operator crack energy futures simultaneous purchase crude oil futures sale petroleum product futures establish refining margin see gross processing margin crop year time period harvest varying commodity july june wheat september august soybeans cross hedge hedging cash market position futures contract different price related commodity cross margining procedure margining related securities options futures contracts jointly different clearing houses clear side position cross rate foreign exchange price currency terms currency market third country example london dollar cross rate price dollar terms deutsche marks london market cross trading offsetting noncompetitive match order customer sell order practice permissible executed accordance commodity exchange act cftc regulations rules contract market crush spread soybean futures market simultaneous purchase soybean futures sale soybean meal soybean oil futures establish processing margin see gross processing margin cta see commodity trading advisor cti codes customer type indicator codes consist identifiers describe transactions type customer trade effected codes trading account trading proprietary account clearing firm trading member currently present trading floor account controlled member trading type customer transaction data classified codes included trade register report produced clearing organization curb trading trading telephone means takes place official market closed originally took place street curb outside market cftc rules curb trading illegal known kerb trading current delivery month futures contract matures deliverable present month called spot month daily price limits see limit day order order expires automatically trading session may day order time contingency example specific time order order remains force specified time session reached time order automatically canceled day traders commodity traders generally members exchange trading floor take positions commodities offset prior close trading trading day day trading establishing offsetting futures market position day dealer option put call physical commodity originating subject rules exchange obligation performance rests writer option dealer options normally written firms handling underlying commodity offered public customers reverse may true deck orders purchase sale futures option contracts held floor broker declaration date see expiration date declaration options see exercise default failure perform futures contract required exchange rules failure meet margin call take delivery deferred futures futures contracts expire distant months called back months see forward purchase sale deliverable grades see contract grades deliverable stocks stocks commodities located exchange approved storage receipts may making delivery futures contracts cotton trade term refers cotton certified delivery see certificated stocks delivery tender receipt actual commodity cash value commodity delivery instrument covering commodity warehouse receipts shipping certificates settle futures contract see notice delivery delivery current deliveries present month current delivery synonym nearby delivery delivery date date commodity instrument delivery delivered fulfill terms contract delivery instrument document effect delivery futures contract warehouse receipt shipping certificate delivery month specified month futures contract matures settled delivery delivery nearby nearest traded month plural form nearer trading months delivery notice written notice given seller intention delivery open short futures position particular date notice delivered clearing house separate distinct warehouse receipt instrument transfer title delivery option provision futures contract provides short flexibility regard timing location quantity quality delivery process delivery points locations designated commodity exchanges stocks commodity represented futures contract may delivered fulfillment contract delivery price price fixed clearing house deliveries futures invoiced generally price futures contract settled deliveries delta see delta value delta margining option margining system exchanges exchange members floor traders equates changes option premiums changes price underlying futures contract determine risk factors base margin requirements delta value expected change price given unit change price underlying futures contract physical commodity deposit initial outlay required broker client open futures position returnable liquidation position depository receipt see vault receipt derivative financial instrument traded exchange price directly dependent derived value underlying securities equity indices debt instruments commodities derivative instruments agreed pricing index arrangement movement time consumer price index freight rates derivatives involve trading rights obligations based underlying product directly transfer property hedge risk exchange floating rate return fixed rate return designated self regulatory organization dsro self regulatory organizations commodity exchanges national futures association enforce minimum financial reporting requirements members responsibilities outlined regulations futures commission merchant fcm member sro sros may decide responsible assuming regulatory duties approval plan commission appointed designated self regulatory organization fcm diagonal spread spread call options put options different strike prices different expiration dates differentials discount premium allowed grades locations commodity lower higher par basis grade location specified futures contact see allowances discount amount price reduced purchase commodity lesser grade refer price differences futures different delivery months phrase july discount may indicating price july futures lower may discount basis method quoting securities price expressed annualized discount maturity value discount bond bond selling par see par discretionary account arrangement holder account gives written power attorney broker sell prior approval holder referred managed account controlled account see controlled account distant deferred delivery usually means distant months futures trading place dominant future future having largest number open contracts double hedging cftc implies situation trader holds long position futures market excess speculative limit offset fixed price sale trader ample supply commodity hand fill sales commitments dsro see designated self regulatory organization dual trading dual trading occurs floor broker executes customer orders day trades account account interest fcm carries customer accounts trades permits employees trade accounts proprietary interest trading day duration measure price sensitivity changes interest rates ease minor slow decline price market ecu see european currency unit efficient market market immediately available investors potential investors market instantaneously assimilated distortions efp exchange physical see exchange futures cash elliot wave theory named ralph elliot contended stock market tends move discernible predictable patterns reflecting basic harmony nature technical analysis charting method based belief prices act wavers rising falling rhythmically equity residual dollar value futures option leverage trading account assuming liquidated current prices eurocurrency certificates deposit cds bonds deposits capital market instrument issued outside national boundaries currency instrument denominated example euro swiss francs euro deutsche marks eurodollars eurodollar bonds eurodollar cds eurodollar dollar deposits placed banks outside holders may include individuals companies banks central banks eurodollar bonds bonds issued europe corporate government interests outside boundary national capital market denominated dollars eurodollar cds dollar denominated certificates deposit issued bank outside united states foreign bank bank subsidiary european currency unit official unit account european monetary system combination basket currencies twelve european community countries deutsche mark french franc british pound sterling irish pound italian lira belgian franc dutch guilder luxembourg franc greek drachma spanish peseta portuguese escudo danish krona lot unit trading commodity established exchange official price quotations apply see round lot exchange futures cash transaction buyer cash commodity transfers seller corresponding amount long futures contracts receives seller corresponding amount short futures price difference mutually agreed way opposite hedges futures parties closed simultaneously called efp exchange physical aa actuals ex pit transactions exchange rate price currency stated terms currency exchange risk factor delta value option computed daily exchange traded exercise elect sell advantage right obligation conferred option contract exercise strike price price specified option contract buyer call purchase commodity life option price specified option contract buyer put sell commodity life option exotic options wide variety options non standard payout structures including asian options lookback options exotic options traded the counter market expiration date date option contract automatically expires day option exercised extrinsic value see time value ex pit see transfer trades exchange futures cash fab spread bond futures spread trade involving buying selling year treasury bond futures contract selling buying long term year treasury bond futures contract fannie mae see federal national mortgage association fan spread note futures spread trade involving buying selling year treasury note futures contract selling buying year treasury bond futures contract fast tape transactions pit take place volume rapidity price reporters price quotations insert fast show range prices federal national mortgage association fnma corporation created congress support secondary mortgage market purchases sells residential mortgages insured federal administration fha guaranteed administration feed ratio relationship cost feed expressed ratio sale price animals corn hog ratio serve indicators profit margin lack profit feeding animals market weight fia see futures industry association fictitious trading wash trading bucketing cross trading schemes give appearance trading bona fide competitive trade occurred fill kill order order demands immediate execution cancellation financial instruments cftc term generally refers futures option contract based agricultural commodity natural resource includes currencies securities mortgages commercial paper indices various kinds notice day day notices intent deliver actual commodities futures market positions received notice day may vary commodity exchange fix fixing see gold fixing fixed income security security nominal current dollar yield fixed determined certainty time purchase floor broker person pit post place provided contract market meeting persons similarly engaged executes person orders purchase sale commodity future delivery floor trader exchange member executes trades personally present pit futures trading see local board indicates delivery inspection elevation loading costs involved putting commodities board carrier paid forced liquidation situation account liquidated open positions offset brokerage firm holding account usually notification account undercapitalized margin calls force majeure clause supply contract permits party fulfill contractual commitments due events control events may range strikes export delays producing countries foreign exchange foreign currency foreign exchange market foreign currency bought sold immediate future delivery forward future forwardation see contango forward contracting cash transaction common industries including commodity merchandising commercial buyer seller agree delivery specified quality quantity goods specified future date price may agreed advance may agreement price determined time delivery forward market refers informal non exchange trading commodities delivered future date contracts forward delivery personalized delivery time amount determined seller customer forward months futures contracts currently trading calling distant delivery see deferred futures forward purchase sale purchase sale commercial parties actual commodity deferred delivery crowd system system trading common commodity exchanges floor members may bid offer simultaneously accounts accounts customers transactions may take place simultaneously different places trading see board broker system specialist system frontrunning respect commodity futures options futures option position based non public regarding impending transaction person related future option full carrying charge full carry see carrying charges fundamental analysis study basic underlying factors affect supply demand commodity traded futures contracts see technical analysis fungibility characteristic interchangeability futures contracts commodity delivery month fungible due standardized specifications quality quantity delivery date delivery locations futures see futures contract futures commission merchant fcm individuals associations partnerships corporations trusts solicit accept orders purchase sale commodity future delivery subject rules contract market accept payment extend credit orders accepted futures contract agreement purchase sell commodity delivery future price determined initiation contract obligates party contract fulfill contract specified price assume shift price risk may satisfied delivery offset futures equivalent term frequently reference speculative position limits options futures contracts futures equivalent option position number options multiplied previous risk factor delta option series example deep money options risk factor considered futures equivalent contracts delta risk factor purpose delta based margining risk analysis systems futures industry association fia membership organization futures commission merchants fcms activities offers education courses futures markets disburses lobbies behalf members futures price commonly held mean price commodity future delivery traded futures exchange price futures contract ginzy trading trade practice floor broker executing order particularly large order fill portion order price remainder order price avoid rule trading fractional increments split ticks in murphy transfer binder comm fut rep cch pp sept commission ginzy trading noncompetitive trading practice violation section commodity exchange act cftc regulation give contract executed broker client broker client orders turned second broker broker accepting order customer collects wire toll carrying broker facilities consolidate small orders disperse large ones globex international electronic trading system futures options allows participating exchanges list products trading close open outcry trading hours developed reuters limited chicago mercantile exchange cme globex launched june certain cme contracts various matif marche terme international france contracts began trading system march government national mortgage association government agency department housing urban development things guarantees payment mortgage backed certificates see ginnie mae gold certificate certificate attesting ownership specific amount gold bullion gold fixing gold fix setting gold price fixing second fixing london representatives london gold market see london gold market gold silver ratio number ounces silver required ounce gold current spot prices good week order gtw order valid week placed good canceled order gtc order valid time market hours executed canceled see open order gpm see gross processing margin grades various qualities commodity grading certificates formal document setting forth quality commodity determined authorized inspectors graders grain futures act federal statute regulated trading grain futures effective june administered department agriculture amended commodity exchange act grantor maker writer issuer option contract return premium paid option stands ready purchase underlying commodity futures contract case put option sell underlying commodity futures contract case call option gross processing margin gpm refers difference cost commodity combined sales income finished products result processing commodity various industries formulas express relationship raw material costs sales income finished products see crack crush gtc see good canceled order gtw see good week order haircut determining assets meet capital requirements percentage reduction stated value assets computing worth assets deposited collateral margin reduction market value hardening describes price gradually stabilizing term indicating slowly advancing market heavy market prices demonstrating inability advance slight tendency decline hedge ratio ratio value futures contracts purchased sold value cash commodity hedged computation necessary minimize basis risk hedging position futures market opposite position held cash market minimize risk financial loss adverse price change purchase sale futures temporary substitute cash transaction occur hog corn ratio see feed ratio hybrid instruments financial instruments possess varying combinations characteristics forward contracts futures contracts option contracts debt instruments bank depository interests interests certain hybrid instruments exempt cftc regulation ib see introducing broker index arbitrage simultaneous purchase sale stock index futures sale purchase component stocks particular stock index profit sufficiently large intermarket spreads futures contract index initial deposit see initial margin initial margin funds put security guarantee contract fulfillment time futures market position established see original margin sight amount particular commodity arrives terminal central locations near producing areas commodity sight inferred reasonably prompt delivery quantity quality known factors estimates intercommodity spread spread long short legs different generally related commodity markets called intermarket spread see spread interdelivery spread spread involving different months commodity called intracommodity spread see spread interest rate futures futures contracts traded fixed income securities treasury issues cds currency excluded category interest rates factor currency values intermarket spread see spread intercommodity spread international commodities clearinghouse icch independent organization serves clearinghouse futures markets london bermuda singapore australia zealand money term describe option contract positive value exercised call gold trading money dollars intracommodity spread see spread interdelivery spread intrinsic value measure value option warrant immediately exercised amount current price underlying commodity futures contract strike price call option strike price put option commodity futures contract introducing broker ib person person registered associated person futures commission merchant engaged soliciting accepting orders purchase sale commodity future delivery exchange accept money securities property margin guarantee secure trades contracts result therefrom inverted market futures market nearer months selling prices higher distant months market displaying inverse carrying charges characteristic markets supply shortages see backwardation invisible supply uncounted stocks commodity hands wholesalers manufacturers producers identified accurately stocks outside commercial channels theoretically available market isda international swap dealers association york based group major international swap dealers published code standard wording assumptions provisions swaps swaps code dollar interest rate swaps standard master interest rate currency swap agreements definitions connection creation trading swaps job lot form contract having smaller unit trading featured regular contract kerb trading dealing see curb trading investment terms investment terms view related 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Investment Terms A Z Free Advice Law Advice Insurance Advice Community Law Advice Free Case Evaluation Ask a Lawyer Q amp A Legal Topics All Legal Topics Accident Law Bankruptcy Law Business Law Criminal Law Employment Labor Law Estate Planning Family Law Financial Law General Practice Government Law Immigration Law Insurance Law Intellectual Property Litigation Malpractice Law Personal Injury Real Estate Law Tax Law Small Claims Admiralty Maritime Aviation Law Financial Law Topics All Financial Law Topics Banking LawSecurities LawCommodities LawBroker Disputes Free Advice Law Advice Financial Law Banking Law Current Page Investment Terms A K Written by FreeAdvice Staff 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 CommodityAggregation 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 per ounce and that for June is per ounce the backwardation for four months against January is 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 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 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 Floor Broker a person who actually executes orders on the trading floor of an exchange 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 the Futures Commission Merchant Broker Association Two or more exchange members who share responsibility for executing customer orders have access to each other's unfilled customer orders as a result of common employment or other types of relationships or 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 strike price one long call at a strike price and one long call at a 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 See Hedging Buy or Sell On Close To buy or sell at the end of the trading session within the closing price range Buy or Sell On Opening To buy or sell at the beginning of a trading session within the open price range C amp F Cost and Freight paid to a point of destination and included in the price quoted Same as C A F Call A period at the opening and the close of some futures markets in which the price for each futures contract is established by auction 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 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 option contract giving the buyer the right but not the obligation to purchase the commodity or to enter into a long futures position and 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 an organized self regulated central market e g a commodity exchange a decentralized over the counter market or 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 which recommended that circuit breakers be adopted following the market break of October 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 and a May call with a strike price of 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 to days Since the notes are unsecured the commercial papers market generally is dominated by large corporations with impeccable credit ratings Commission The charge made by a commission house for buying and selling commodities the CFTC Commitments See Open Interest Commodity Credit Corporation A government owned corporation established in 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 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 Commodity Futures Trading Commission CFTC The Federal regulatory agency established by the CFTC Act of 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 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 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 A term of reference describing a unit of trading for a commodity future or option 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 A board of trade or exchange designated by the Commodity Futures Trading Commission to trade futures or options under the Commodity Exchange Act 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 Securing such relative control of a commodity or security that its price can be manipulated 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 Purchasing futures to offset a short position Same as Short Covering See Offset Liquidation 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 to June for wheat September to August 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 trading for the member's own account trading for a proprietary account of the clearing member's firm trading for another member who is currently present on the trading floor or for an account controlled by such other member and 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 The amount a price would be reduced to purchase a commodity of lesser grade 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 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 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 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 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 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 at a price that is determined at initiation of the contract which obligates each party to the contract to fulfill the contract at the specified price which is used to assume or shift price risk and 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 deep out of money options with a risk factor of would be considered 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 Commonly held to mean the price of a commodity for future delivery that is traded on a futures exchange The price of any futures contract 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 Transfer Binder Comm Fut L Rep CCH at pp Sept the Commission found that ginzy trading was a noncompetitive trading practice in violation of section c a B of the Commodity Exchange Act and CFTC regulation 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 for certain CME contracts Various MATIF Marche a Terme International de France contracts began trading on the system on March 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 AM first fixing and 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 administered by the U S Department of Agriculture amended in 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 In determining whether assets meet capital requirements a percentage reduction in the stated value of assets In computing the worth of assets deposited as collateral or margin a reduction from market value Hardening Describes a price which is gradually stabilizing a term indicating a slowly advancing market Heavy A market in which prices are demonstrating either an inability to advance or a slight tendency to decline Hedge Ratio Ratio of the value of futures contracts purchased or sold to the value of the cash commodity being hedged a computation necessary to minimize basis risk Hedging Taking a position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change a purchase or sale of futures as a temporary substitute for a cash transaction that will occur later Hog Corn Ratio See Feed Ratio Hybrid Instruments Financial instruments that possess in varying combinations characteristics of forward contracts futures contracts option contracts debt instruments bank depository interests and other interests Certain hybrid instruments are exempt from CFTC regulation IB See Introducing Broker Index Arbitrage The simultaneous purchase sale of stock index futures and the sale purchase of some or all of the component stocks which make up the particular stock index to profit from sufficiently large 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 on gold trading at is in the money 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 Click here for Investment Terms L O 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