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GLOSSARY

A
Arbitrage
Attempting to profit by exploiting price references of identical or similar commodities or financial instruments on different markets or in different forms. Arbitrage opportunities (If they exist) provide riskless profit opportunities.
Arbitrageurs
A sub classification of speculators that try to profit by taking very short term position in the market to take advantage of market anomalies. One who practices arbitrage.
Ask
The price that a seller is willing to accept for a futures or options contract.
B
Bid
The price that a buyer is willing to pay for a futures or options contract.
Bid-Ask Spread
The difference between the Bid and Ask prices. Generally you will buy at the Ask, and sell at the Bid. The Ask is always higher then the Bid.
Bear market
A market in which prices are falling.
Broker
A person or firm that executes futures and options trades on the floor of the exchange on behalf of a public investor.
Bull market
A market in which prices are rising.
C
Calendar Spread
An option transaction consisting of the purchase of an option with a given expiration an the sale of an otherwise identical option with a different expiration.
Call Option
A call option gives the buyer of the option the right but not the obligation to buy the underlying futures contract at a specified price.
Cash (or spot) price
Also known as spot price. Cash prices refer to the actual market for immediate delivery of the physical commodity commodity or financial instrument underlying a futures or options contract.
Cash Settlement
Future contract that do not permit delivery, rather the contracts are settled at the cash price.
Clearing House
The clearinghouse financially guarantees all contracts on the exchange and manages the financial settlement of futures and options contract.
Closing purchase
A transaction which closes an open short position .
Closing sell
A transaction which closes an open long position.
Combination
An option strategy involving positions in a put and a call. Sometime used to refer to any option strategy involving more than one option.
Commodity Futures
Any futures contract, but primarily a future on and agricultural product or sometime a metal or natural resource.
Contract Month / Delivery Month
Indicates the month during which the futures contract expires.
Contract Specification
A derivative exchange designs its own products and publishes a contract specification setting out the details of the derivative contract. This will include the size or unit of trading and the underlying, maturity months, quotation and minimum price movement and value together with trading times, methods and delivery condition.
Counterparty
A trade can take place between two or more counterparties. Usually one party to a trade refers to its trading partners as counterparties.
D
Daily Price Limits
The maximum and minimum prices at which a futures contract can trade. These are established by the clearinghouse and are expressed in relation to the previous day's settlement price.
Day Traders
A derivatives trader to closes out all position by the end of the trading session.
Delivery
The physical movement of the underlying asset on which the derivative is based from seller to buyer.
Delivery Month
Indicates the month during which the futures contract expires.
Derivatives
A financial instrument whose value is dependent upon the value of an underlying asset.
E
Equity Derivatives
Any type of derivative contract in which the payoff is based on a stock or stock index.
Exchange-listed Derivatives
An option or futures that trades on an exchange.
F
Fill or Kill
An order where a precise number of contracts must be filled or the order is cancelled.
Fixed Income Derivatives
Interest on a security that is calculated as a constant specified percentage of the principal amount and paid at the end of specified interest periods, usually annually or semi-annually, until maturity.
Forward Contract
An agreement between two parties, a buyer and seller, to buy an asset or currency at a later date at a fix price.
Fundamental Analysis
Analysis of a stock security based on the ability of the organization to generate profit for its shareholders. Such analysis embraces earnings, PE Ratios, EPR, Net assets, liabilities, customer, etc.
Futures Contract
An agreement between two parties, a buyer and a seller, to purchase an asset or currency at a later date at a fix price and that trades on a futures exchange and is subject to a daily settlement procedure to guarantee to each party that claims against the other parties will be paid.
Futures Exchange
An organized facility for trading futures, which is governed by a corporate charter with rules and regulations. It may utilize a trading floor or may be an electronic exchange.
G
Good till Canceled /expiration
An order that is in effect until canceled and is used most often with stop orders and limit orders that may take some time to execute.
H
Hedge
A transaction in which an investor seeks to protect a position or anticipated position in the spot market by using an opposite position derivatives.
Hedger
An investor who executes a hedge transaction.
I
Initial Margin
The minimum amount of money that must be in and investment account on the day of a transaction. On futures accounts, the initial margin must be met on any day in which the opening balance starts off below the maintenance margin requirement.
L
Last Trading Day
Often the day preceding last notice day which is the final opportunity for holders of long positions to trade out of their positions and avoid ultimate delivery.
Leverage
The magnification of gains and losses by paying only for part of the underlying value of the instrument or asset; the smaller the amount of funds invested, the greater the leverage. It is also known as gearing.
Limit Order
A request to purchase or sell a security or derivative that specifies to maximum price to pay or minimum price to accept.
Long Position
A position involving the purchase of a security or derivative. It also refers to the party holding the long position.
M
Maintenance Margin
The minimum amount of money that much be kept in a margin account on any day other than the day of a transaction.
Margin
Funds kept in a margin account for the purpose of covering losses.
Margin Call
Where the brokerage calls the account holder in order for them to pay more funds into their account to maintain the trade.
Market Maker
A trader or trading firm that buys and sells securities in a market in order to facilitate trading. Market makers make a two side market.
Market Order
A request to purchase or sell a security or derivative in which the broker is instructed to execute the transaction at to current market price.
Mark-to-Market
The daily adjustment of margin accounts to reflect profits and losses in such a way that losses are not allowed to accumulate.
O
Offset
A method of terminating a swap in which a party enters into a new swap with payments occurring on the same dates as the old swap. Both swaps remain in effect.
Open Interest
The number of futures or options contracts that have been established and not yet been offset or exercised.
Option
A contract granting the right to buy or sell an asset, currency, or futures at a fixed price for a specific time period.
Over-the-Counter
At one-to-one agreement between two counterparties where the specifications of the product are completely flexible and non-standardised. A negotiated trade where counterparty risk is potentially an issue.
P
Position Limit
The maximum number of options or futures contracts that any one investor can hold.
Position Trader
A future trader who normally holds open positions for a period longer then a day.
Program Trading
The trading of large blocks of stock as part of a program of index arbitrage or portfolio insurance.
Put
An option to sell an asset, currency, or futures.
S
Scalper
A trader on the floor of a derivatives exchange whose trading style involves short holding periods and small profits based on small price changes.
Settle or Settlement Price
The official price established by the clearinghouse at the end of each day for use in the daily settlement.
Short Position
A term used to refer to holding a short position or to the party holding the short position.
Speculate
Investments characterized by a high degree of risk and usually short holding periods.
Speculator
One who engages in speculative transactions.
Spot Market
The market for assets that involves the immediate sale and delivery of the asset.
Spot Price
The price of an asset on the spot market.
Spread
A derivatives transaction consisting of a long position in one contract and a short position in another, similar contract.
Stock Index
A combination of stock prices designed to measuse the performance of the stocks as a whole.
Stock Index Futures
A futures contract on a underlying stock index.
Stop Order
An order to purchase or sell securities or derivatives that is not executed until the price reaches a certain level.
Swap
A derivative transaction in which two parties agree to exchange cash flows calculated according to different formulas.
T
Technical Analysis
using charts and charting techniques and indicators (such as prices, volume, moving averages, stochastics. Etc.) to evaluate future likely price movement.
Tick Size
The minimum permissible price fluctuation.
U
Underlying Asset
The asset or instrument on which a derivative's payoff is based.
V
Variation Margin
Money added to or subtracted from a futures account that reflects profits or losses accruing from the daily settlement.
Volatility
The characteristic of fluctuations in price. Usually refers to Standard deviation.
Volume
The number of contracts traded over a given time interval.
W
Warehouse Receipt
A document indicating a specific contract and location information of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.
Warrant (Metals)
A document of title issued by a warehouse or depository for a specific lot of stored metal that meets the specifications of the corresponding Exchange metals futures contract. Metal that is "on warrant" is eligible for delivery against a short position on the Exchange.
Wet Barrel (Energy)
A physical barrel of crude oil or refined product as opposed to a "paper barrel."
Wet Gas
Natural gas containing condensable hydrocarbons.
Wire House
An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as "commission house" or Futures Commission Merchant (FCM).
With Discretion (DISC) or
Disregard the Tape (DRT)
A note on an order telling the floor broker to use his or her own good judgment in filling the order.
Writer
The issuer or seller of an option contract.
Y
Yard
Market slang for a billion.
Yield
A measure of the annual return on an investment expressed as a percentage
Yield Curve
A chart that graphically depicts the yields of different maturity bonds of the same credit quality and type.
Yield-To-Maturity
The rate of return an investor receives if a fixed-income security is held to maturity.
Z
Zero-Sum Game
Type of game when one player gains only at the expense of another player.
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