A

Account: The bookkeeping record of a customer's transaction and credit (or debit) balances. This record usually includes confirmation of transactions, listing of holdings and/or open positions, cash and/or cash equivalents, beginning and ending liquidating value.

Account balance: The amount of money or debt in an account.

Accrued Interest: Interest earned between the most recent interest payment and the present date but not yet paid to the lender.

Add-on Method: A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.

Adjusted Futures Price: The cash-price equivalent reflected in the current futures price. This is calculated by taking the futures price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.

Arbitrage: The simultaneous purchase and sale of similar commodities in different markets to take advantage of a price discrepancy.

Arbitration: The procedure of settling disputes between members, or between members and customers.

Assign: To make an option seller perform his obligation to assume a short futures position (as a seller of a call option) or a long futures position (as a seller of a put option).

Associated Person (AP): 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 Option: An option with a strike price that is equal, or approximately equal, to the current market price of the underlying futures contract.

B

Balance of Payment: A summary of the international transactions of a country over a period of time including commodity and service transactions, capital transactions, and gold movements.

Bar Chart: A chart that graphs the high, low, and settlement prices for a specific trading session over a given period of time.

Basis: The difference between the 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 Point: The measurement of a change in the yield of a debt security. One basis point equals 1/100 of one percent.

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 period of declining market prices.

Bear Spread: In most commodities and financial instruments, the term refers to selling the nearby contract month, and buying the deferred contract, to profit from a change in the price relationship.

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 expression indicating a desire to buy a commodity at a given price; opposite of offer.

Broker: A company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.

Brokerage Fee: See Commission Fee.

Bull: One who expects a rise in prices. The opposite of "bear." A news item is considered bullish if it portends higher prices.

Bull Market: A period of rising market prices.

Bull Spread: In most commodities and financial instruments, the term refers to buying the nearby month, and selling the deferred month, to profit from the change in the price relationship.

Butterfly Spread: The placing of two interdelivery spreads in opposite directions with the center delivery month common to both spreads.

Buying Hedge (or Long Hedge): Hedging transaction in which futures contracts are bought to protect against possible increases in the cost of commodities.

C

Call Option: An option that gives the buyer the right, but not the obligation, to purchase (go "long'') the underlying futures contract at the strike price on or before the expiration date.

Canceling Order: An order that deletes a customer's previous order.

Carrying Charge: For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of funds necessary to buy the instrument. Also referred to as cost of carry or carry.

Carryover: Grain and oil seed commodities not consumed during the marketing year and remaining in storage at year's end. These stocks are "carried over'' into the next marketing year and added to the stocks produced during that crop year.

Cash Commodity: An actual physical commodity someone is buying or selling, e.g., soybeans, corn, gold, silver, Treasury bonds, etc. Also referred to as actuals.

Cash Contract: A sales agreement for either immediate or future delivery of the actual product.

Cash Market: A place where people buy and sell the actual commodities, i.e., grain elevator, bank, etc.

Cash Price: The price in the marketplace for actual cash or spot commodities to be delivered via customary market channels.

Cash Settlement: Transactions generally involving index-based futures contracts that are settled in cash based on the actual value of the index on the last trading day, in contrast to those that specify the delivery of a commodity or financial instrument.

Certificate of Deposit (CD): A time deposit with a specific maturity evidenced by a certificate.

CFTC: See Commodity Futures Trading Commission.

Charting: The use of charts to analyze market behavior and anticipate future price movements. Those who use charting as a trading method plot such factors as high, low, and settlement prices; average price movements; volume; and open interest. Two basic price charts are bar charts and point-and-figure charts. Also see Technical Analysis.

Cheapest to Deliver: A method to determine which particular cash debt instrument is most profitable to deliver against a futures contract.

Clear: The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing member.

Clearinghouse: An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data. Clearinghouses act as third parties to all futures and options contracts acting as a buyer to every clearing member seller and a seller to every clearing member buyer.

Clearing Member: A member of an exchange clearinghouse. Memberships in clearing organizations are usually held by companies. Clearing members are responsible for the financial commitments of customers that clear through their firm.

Closing Price: See Settlement Price.

Closing 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."

COM Membership (CBOT): A Chicago Board of Trade membership that allows an individual to trade contracts listed in the commodity options market category.

Commission Fee: A fee charged by a broker for executing a transaction. Also referred to as brokerage fee.

Commission House: See Futures Commission Merchant (FCM).

Commodity: An article of commerce or a product that can be used for commerce. In a narrow sense, products traded on an authorized commodity exchange. The types of commodities include agricultural products, metals, petroleum, foreign currencies, and financial instruments and indexes, to name a few.

Commodity Credit Corporation (CCC): A branch of the U.S. Department of Agriculture, established in 1933, that supervises the government's farm loan and subsidy programs.

Commodity Futures Trading Commission (CFTC): The Federal regulatory agency established by the CFTC Act of 1974 to administer the Commodity Exchange Act.

Commodity Pool: An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts or commodity options.

Commodity Pool Operator (CPO): 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 Trading Adviser (CTA): A person who, for compensation or profit, directly or indirectly advises others as to the value or the advisability of buying or selling futures contracts or commodity options. Advising indirectly includes exercising trading authority over a customer's account as well as providing recommendations through written publications or other media.

Computerized Trading Reconstruction (CTR) System: A Chicago Board of Trade computerized surveillance program that pinpoints in any trade the traders, the contract, the quantity, the price, and time of execution to the nearest minute.

Congestion: (1) A market situation in which shorts attempting to cover their positions are unable to find an adequate supply of contracts provided by longs willing to liquidate or by new sellers willing to enter the market, except at sharply higher prices; (2) in technical analysis, a period of time characterized by repetitious and limited price fluctuations.

Consumer Price Index (CPI): A major inflation measure computed by the U.S. Department of Commerce. It measures the change in prices of a fixed market basket of some 385 goods and services in the previous month.

Contract: 1) A term of reference describing a unit of trading for a commodity future or option; (2) An agreement to buy or sell a specified commodity, detailing the amount and grade of the product and the date on which the contract will mature and become deliverable.

Contract Month: Jan-F, Feb-G, Mar-H, Apr-J, May-K, Jun-M, Jul-N, Aug-Q, Sep-U, Oct-V, Nov-X, Dec-Z.

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: A term referring to cash and futures prices tending to come together (i.e., the basis approaches zero) as the futures contract nears expiration.

Conversion Factor: A factor used to equate the price of T-bond and T-note futures contracts with the various cash T-bonds and T-notes eligible for delivery. This factor is based on the relationship of the cash-instrument coupon to the required 8 percent deliverable grade of a futures contract as well as taking into account the cash instrument's maturity or call.

Coupon: A fixed dollar amount of interest payable per annum, stated as a percentage of principal value, usually payable in semiannual installments.

Crop (Marketing) Year: The time span from harvest to harvest for agricultural commodities. The crop marketing year varies slightly with each commodity, but it tends to begin at harvest and end before the next year's harvest, e.g., the marketing year for soybeans begins September 1 and ends August 31. The futures contract month of November represents the first major new-crop marketing month, and the contract month of July represents the last major old-crop marketing month for soybeans.

Crop Reports: Reports compiled by the U.S. Department of Agriculture on various ag commodities that are released throughout the year. Information in the reports includes estimates on planted acreage, yield, and expected production, as well as comparison of production from previous years.

Cross-Hedging: Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures markets follow similar price trends (e.g., using soybean meal futures to hedge fish meal).

Cross-Margining: A procedure for margining related securities, options, and futures contracts jointly when different clearing houses clear each side of the position.

Crush Spread: The purchase of soybean futures and the simultaneous sale of soybean oil and meal futures. See Reverse Crush.

CTA: See Commodity Trading Advisor.

Current Yield: The ratio of the coupon to the current market price of the debt instrument.

Customer Margin: Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations. FCMs are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance-bond margin.

D

Daily Trading Limit: The maximum price range set by the exchange each day for a contract. Day Traders: Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.

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: Traders, who take positions in commodities and then offset them prior to the close of trading on the same trading day.

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

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

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

Delivery Day: The date on which the commodity or instrument of delivery must be delivered to fulfill the terms of a contract.

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

Delivery 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 Points: The locations and facilities designated by a futures exchange where stocks of a commodity may be delivered in fulfillment of a futures contract, under procedures established by the exchange.

Delta: A measure of how much an option premium changes, given a unit change in the underlying futures price. Delta often is interpreted as the probability that the option will be in-the-money by expiration.

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.

Differentials: Price differences between classes, grades, and delivery locations of various stocks of the same commodity.

Discount Rate: The interest rate charged on loans by the Federal Reserve to member banks. Discretionary Account: An arrangement by which the holder of the account gives written power of attorney to another person, often his broker, to make trading decisions. Also known as a controlled or managed account.

Discretionary Account: An arrangement by which the holder of the account gives written power of attorney to person, often his broker, to make trading decisions. Also known as a controlled or managed account.

E

Equity: The residual dollar value of a futures, option, or leverage trading account, assuming it was liquidated at current prices.

Eurodollars: U.S. dollars on deposit with a bank outside of the United States and, consequently, outside the jurisdiction of the United States. The bank could be either a foreign bank or a subsidiary of a U.S. bank.

European Terms: A method of quoting exchange rates, which measures the amount of foreign currency needed to buy one U.S. dollar, i.e., foreign currency unit per dollar.

Exchange For Physicals (EFP): A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as against actuals or versus cash.

Exercise: The action taken by the holder of a call option if he wishes to purchase the underlying futures contract or by the holder of a put option if he wishes to sell the underlying futures contract.

Exercise Price 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.

Expanded Trading Hours: Additional trading hours of specific futures and options contracts at the Chicago Board of Trade that overlap with business hours in other time zones.

Expiration Date: Options on futures generally expire on a specific date during the month preceding the futures contract delivery month. For example, an option on a March futures contract expires in February but is referred to as a March option because its exercise would result in a March futures contract position.
Extrinsic Value: See Time Value.

F

Face Value: The amount of money printed on the face of the certificate of a security; the original dollar amount of indebtedness incurred.

Federal Funds: Member bank deposits at the Federal Reserve; these funds are loaned by member banks to other member banks.

Federal Funds Rate: The rate of interest charged for the use of federal funds.
Federal Housing Administration (FHA): A division of the U.S. Department of Housing and Urban Development that insures residential mortgage loans and sets construction standards.

Federal Reserve System: A central banking system in the United States, created by the Federal Reserve Act in 1913, designed to assist the nation in attaining its economic and financial goals. The structure of the Federal Reserve System includes a Board of Governors, the Federal Open Market Committee, and 12 Federal Reserve Banks.

Feed Ratio: 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.
Fill-or-Kill: A customer order that is a price limit order that must be filled immediately or canceled.

Financial Instrument: There are two basic types: (1) a debt instrument, which is a loan with an agreement to pay back funds with interest; (2) an equity security, which is a share or stock in a company.

First Notice Day: According to Chicago Board of Trade rules, the first day on which a notice of intent to deliver a commodity in fulfillment of a given month's futures contract can be made by the clearinghouse to a buyer. The clearinghouse also informs the sellers who they have been matched up with.

Floor Broker (FB): An individual who executes orders for the purchase or sale of any commodity futures or options contract on any contract market for any other person.

Floor Trader (FT): An individual who executes trades for the purchase or sale of any commodity futures or options contract on any contract market for such individual's own account.

Forex Market: An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication. Also referred to as foreign exchange market.

Forward (Cash) Contract: A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

Full Carrying Charge Market: A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage.

Full Membership (CBOT): A Chicago Board of Trade membership that allows an individual to trade all futures and options contracts listed by the exchange.

Fundamental Analysis: A method of anticipating future price movement using supply and demand information.

Futures Commission Merchant (FCM): An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as commission house or wire house.

Futures Contract: A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange trading floor.

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

G

Gamma: A measurement of how fast delta changes, given a unit change in the underlying futures price.

GIM Membership (CBOT): A Chicago Board of Trade membership that allows an individual to trade all futures contracts listed in the government instrument market category.

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: A global after-hours electronic trading system. Developed by Reuters Limited for use by the Chicago Mercantile Exchange (CME), Globex was launched on June 25, 1992, for certain CME contracts. Various MATIF (Marche a Terme International de France) contracts began trading on the system on March 15, 1993.

Good 'Til Canceled Order (GTC): Order which is valid at any time during market hours until executed or canceled.

Grain Terminal: Large grain elevator facility with the capacity to ship grain by rail and/or barge to domestic or foreign markets.

Gross Domestic Product (GDP): The value of all final goods and services produced by an economy over a particular time period, normally a year.

Gross National Product (GNP): Gross Domestic Product plus the income accruing to domestic residents as a result of investments abroad less income earned in domestic markets accruing to foreigners abroad.

H

Hedger: An individual or company owning or planning to own a cash commodity corn, soybeans, wheat, U.S. Treasury bonds, notes, bills, etc. and concerned that the cost of the commodity may change before either buying or selling it in the cash market. A hedger achieves protection against changing cash prices by purchasing (selling) futures contracts of the same or similar commodity and later offsetting that position by selling (purchasing) futures contracts of the same quantity and type as the initial transaction.

Hedging: The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their businesses from adverse price changes.

High: The highest price of the day for a particular futures contract.

Horizontal Spread: The purchase of either a call or put option and the simultaneous sale of the same type of option with typically the same strike price but with a different expiration month. Also referred to as a calendar spread.

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.

I

Initial Margin: Customers' funds put up as security for a guarantee of contract fulfillment at the time a futures market position is established.

Intercommodity Spread: The purchase of a given delivery month of one futures market and the simultaneous sale of the same delivery month of a different, but related, futures market.

Interdelivery Spread: The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same commodity on the same exchange. Also referred to as an intramarket or calendar spread.

Intermarket Spread: The sale of a given delivery month of a futures contract on one exchange and the simultaneous purchase of the same delivery month and futures contract on another exchange.

In-the-Money Option: An option having intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract. See Intrinsic Value.

Intrinsic Value: The 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 (IB): A person or organization that solicits or accepts orders to buy or sell futures contracts or commodity options but does not accept money or other assets from customers to support such orders.

Inverted Market: A futures market in which the relationship between two delivery months of the same commodity is abnormal.

Invisible Supply: Uncounted stocks of a commodity in the hands of wholesalers, manufacturers, and producers that cannot be identified accurately; stocks outside commercial channels but theoretically available to the market.

J

K

L

Lagging Indicators: Market indicators showing the general direction of the economy and confirming or denying the trend implied by the leading indicators. Also referred to as concurrent indicators.

Last Trading Day: According to the Chicago Board of Trade rules, the final day when trading may occur in a given futures or options contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement (in some cases by EFPs).

Leading Indicators: Market indicators that signal the state of the economy for the coming months. Some of the leading indicators include: average manufacturing workweek, initial claims for unemployment insurance, orders for consumer goods and material, percentage of companies reporting slower deliveries, change in manufacturers' unfilled orders for durable goods, plant and equipment orders, new building permits, index of consumer expectations, change in material prices, prices of stocks, change in money supply.

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

Limit Order: An order in which the customer sets a limit on the price and/or time of execution.

Limits: The maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange.

Liquid: A characteristic of a security or commodity market with enough units outstanding to allow large transactions without a substantial change in price. Institutional investors are inclined to seek out liquid investments so that their trading activity will not influence the market price.

Liquidate: Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract.

Liquidity Data Bank (LDB): A computerized profile of CBOT market activity, used by technical traders to analyze price trends and develop trading strategies. There is a specialized display of daily volume data and time distribution of prices for every commodity traded on the Chicago Board of Trade.

Loan Program: A federal program in which the government lends money at preannounced rates to farmers and allows them to use the crops they plant for the upcoming crop year as collateral. Default on these loans is the primary method by which the government acquires stocks of agricultural commodities.

Loan Rate: The amount lent per unit of a commodity to farmers.

Local: A member of a U.S. exchange who trades for his own account and/or fills orders for customers and whose activities provide market liquidity.

Long: One who has bought futures contracts or owns a cash commodity.

Long the Basis: A person or firm that has bought the spot commodity and hedged with a sale of futures is said to be long the basis.

Low: The lowest price of the day for a particular futures contract.

M

Maintenance Margin: A set minimum margin (per outstanding futures contract) that a customer must maintain in his margin account.

Managed Account: See Discretionary Account.

Managed Futures: Represents an industry comprised of professional money managers known as commodity trading advisors who manage client assets on a discretionary basis, using global futures markets as an investment medium.

Margin: The amount of money or collateral deposited by a customer with his broker, by a broker with a clearing member, or by a clearing member with the clearinghouse, for the purpose of insuring the broker or clearinghouse against loss on open futures contracts. The margin is not partial payment on a purchase. (1) Initial margin is the total amount of margin per contract required by the broker when a futures position is opened; (2) Maintenance margin is a sum which must be maintained on deposit at all times. If the equity in a customer's account drops to, or under, the level because of adverse price movement, the broker must issue a margin call to restore the customer's equity.

Margin Call: A call from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.
Market-if-Touched (MIT) Order: An order that becomes a market order when a particular price is reached. A sell MIT is placed above the market; a buy MIT is placed below the market.

Market-on-Close: An order to buy or sell at the end of the trading session at a price within the closing range of prices.

Market-on-Opening: An order to buy or sell at the beginning of the trading session at a price within the opening range of prices.

Market Order: An order to buy or sell a futures contract of a given delivery month to be filled at the best possible price and as soon as possible.
Market Reporter: A person employed by the exchange and located in or near the trading pit who records prices as they occur during trading.

Marking-to-Market: To debit or credit on a daily basis a margin account based on the close of that day's trading session. In this way, buyers and sellers are protected against the possibility of contract default.

Minimum Price Fluctuation: Smallest increment of price movement possible in trading a given contract.

Momentum: In technical analysis, the relative change in price over a specific time interval. Often equated with speed or velocity and considered in terms of relative strength.

Money Supply: The amount of money in the economy, consisting primarily of currency in circulation plus deposits in banks: M-1 U.S. money supply consisting of currency held by the public, traveler's checks, checking account funds, NOW and super-NOW accounts, automatic transfer service accounts, and balances in credit unions. M-2 U.S. money supply consisting of M-1 plus savings and small time deposits (less than $100,000) at depository institutions, overnight repurchase agreements at commercial banks, and money market mutual fund accounts. M-3 U.S. money supply consisting of M-2 plus large time deposits ($100,000 or more) at depository institutions, repurchase agreements with maturities longer than one day at commercial banks, and institutional money market accounts.
Moving-Average Charts: A statistical price analysis method of recognizing different price trends. A moving average is calculated by adding the prices for a predetermined number of days and then dividing by the number of days.

Municipal Bonds: Debt securities issued by state and local governments, and special districts and counties.

N

Naked Option: The sale of a call or put option without holding an offsetting position in the underlying commodity.

National Futures Association (NFA): An industry wide, industry-supported, self-regulatory organization for futures and options markets. The primary responsibilities of the NFA are to enforce ethical standards and customer protection rules, screen futures professionals for membership, audit and monitor professionals for financial and general compliance rules, and provide for arbitration of futures-related disputes.

Nearby (Delivery) Month: The futures contract month closest to expiration. Also referred to as spot month.

Negative Carry: The cost of financing a financial instrument (the short-term rate of interest), when the cost is above the current return of the financial instrument. See Carrying Charges.

Net Position: The difference between the open long contracts and the open short contracts held by a trader in any one commodity

Notice Day: According to Chicago Board of Trade rules, the second day of the three-day delivery process when the clearing corporation matches the buyer with the oldest reported long position to the delivering seller and notifies both parties..

O

Offer: An expression indicating one's desire to sell a commodity at a given price; opposite of bid.

Offset: Taking a second futures or options position opposite to the initial or opening position.

Omnibus Account: An account carried by one futures commission merchant with another futures commission merchant in which the transactions of two or more persons are combined and carried in the name of the originating broker rather than designated separately.

Opening Range: A range of prices at which buy and sell transactions took place during the opening of the market.

Open Interest: The total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.

Open Market Operation: The buying and selling of government securities Treasury bills, notes, and bonds by the Federal Reserve.

Open Order (or Orders): An order that remains in force until it is canceled or until the futures contracts expire.

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

Option: A contract that conveys the right, but not the obligation, to buy or sell a particular item at a certain price for a limited time. Only the seller of the option is obligated to perform.

Option Buyer: The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Also referred to as the holder.

Option Premium: The price of an option the sum of money that the option buyer pays and the option seller receives for the rights granted by the option.

Option Seller: The person who sells an option in return for a premium and is obligated to perform when the holder exercises his right under the option contract. Also referred to as the writer.

Option Spread: The simultaneous purchase and sale of one or more options contracts, futures, and/or cash positions.

Option Writer: The person who originates an option contract by promising to perform a certain obligation in return for the price of the option.

Original Margin: The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as initial margin.

Out-of-the-Money Option: An option with no intrinsic value, i.e., a call whose strike price is above the current futures price or a put whose strike price is below the current futures price.

Overbought: A technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bullish and long have turned bearish.

Overnight Trade: A trade which is not liquidated on the same trading day in which it was established.

Oversold: A technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bearish and short have turned bullish.

Over-the-Counter (OTC) Market: A market where products such as stocks, foreign currencies, and other cash items are bought and sold by telephone and other means of communication.

P

P&S (Purchase and Sale) Statement: A statement sent by a commission house to a customer when his futures or options on futures position has changed, showing the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, and the net profit or loss on the transactions.

Par: The face value of a security. For example, a bond selling at par is worth the same dollar amount it was issued for or at which it will be redeemed at maturity.
Performance Bond Margin: The amount of money deposited by both a buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit.

Pit: The area on the trading floor where futures and options on futures contracts are bought and sold. Pits are usually raised octagonal platforms with steps descending on the inside that permit buyers and sellers of contracts to see each other.

Point-and-Figure Charts: Charts that show price changes of a minimum amount regardless of the time period involved.

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

Position Day: According to the Chicago Board of Trade rules, the first day in the process of making or taking delivery of the actual commodity on a futures contract. The clearing firm representing the seller notifies the Board of Trade Clearing Corporation that its short customers want to deliver on a futures contract.

Position Limit: The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange upon which the contract is traded. Also referred to as trading limit.

Position Trader: An approach to trading in which the trader either buys or sells contracts and holds them for an extended period of time.

Premium: (1) The additional payment allowed by exchange regulation for delivery of higher-than-required standards or grades of a commodity against a futures contract. (2) In speaking of price relationships between different delivery months of a given commodity, one is said to be ""trading at a premium'' over another when its price is greater than that of the other. (3) In financial instruments, the dollar amount by which a security trades above its principal value.

Price Discovery: The generation of information about "future'' cash market prices through the futures markets.

Price Limit: The maximum advance or decline from the previous day's settlement price permitted for a contract in one trading session by the rules of the exchange.

Price Limit Order: A customer order that specifies the price at which a trade can be executed.

Primary Dealer: A designation given by the Federal Reserve System to commercial banks or broker/dealers who meet specific criteria. Among the criteria are capital requirements and meaningful participation in the Treasury auctions.

Primary Market: (1) For producers, their major purchaser of commodities; (2) in commercial marketing channels, an important center at which spot commodities are concentrated for shipment to terminal markets; and (3) to processors, the market that is the major supplier of their commodity needs.

Prime Rate: Interest rate charged by major banks to their most creditworthy customers.

Producer Price Index (PPI): An index that shows the cost of resources needed to produce manufactured goods during the previous month.

Pulpit: In trade parlance, non-professional speculators as distinguished from hedgers and professional speculators or traders.

Purchasing Hedge (or Long Hedge): Buying futures contracts to protect against a possible price increase of cash commodities that will be purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge.

Put Option: An option that gives the option buyer the right but not the obligation to sell (go "short'') the underlying futures contract at the strike price on or before the expiration date.

Pyramiding: The use of profits on existing positions as margin to increase the size of the position, normally in successively smaller increments.

Q

R

Rally: An upward movement of prices.

Range (Price): The price span during a given trading session, week, month, year, etc.

Recovery: An upward price movement after a decline

Reserve Requirements: The minimum amount of cash and liquid assets as a percentage of demand deposits and time deposits that member banks of the Federal Reserve are required to maintain.

Resistance: A level above which prices have had difficulty penetrating.

Resting Order: An order to buy at a price below or to sell at a price above the prevailing market that is being held by a floor broker. Such orders may either be day orders or open orders.

Retracement: A reversal within a major price trend.

Reversal: A change of direction in prices.

Reverse Crush Spread: The sale of soybean futures and the simultaneous purchase of soybean oil and meal futures. See Crush Spread.

Roll-Over: A trading procedure involving the shift of one month of a straddle into another future month while holding the other contract month. The shift can take place in either the long or short straddle month. The term also applies to lifting a near futures position and re-establishing it in a more deferred delivery month.

Round Turn: A completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

Runners: Messengers who rush orders received by phone clerks to brokers for execution in the pit.

S

Scalper: A speculator on the trading floor of an exchange who buys and sells rapidly, with small profits or losses, holding his positions for only a short time during a trading session. Typically, a scalper will stand ready to buy at a fraction below the last transaction price and to sell at a fraction above, thus creating market liquidity.

Scalping: The practice of trading in and out of the market on very small price fluctuations. A person who engages in this practice is known as a scalper.

Secondary Market: Market where previously issued securities are bought and sold.

Security: Common or preferred stock; a bond of a corporation, government, or quasi-government body.

Selling Hedge (or Short Hedge): Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold.

Settlement: The act of fulfilling the delivery requirements of the futures contract

Settlement Price: The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm's net gains or losses, margin requirements, and the next day's price limits, based on each futures and options contract settlement price. If there is a closing range of prices, the settlement price is determined by averaging those prices. Also referred to as settle or closing price.

Short: The selling side of an open futures contract.

Short Hedge: See Selling Hedge.

Short Selling: Selling a futures contract with the idea of delivering on it or offsetting it at a later date.

Soft: A description of a price which is gradually weakening. Also refers to commodities such as sugar, cocoa, and coffee.

Speculator: A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. Speculators assume market price risk and add liquidity and capital to the futures markets.
Spot: Usually refers to a cash market price for a physical commodity that is available for immediate delivery.

Spread: The price difference between two related markets or commodities.

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

Stock Index: An indicator used to measure and report value changes in a selected group of stocks. How a particular stock index tracks the market depends on its composition the sampling of stocks, the weighting of individual stocks, and the method of averaging used to establish an index.

Stock Market: A market in which shares of stock are bought and sold.

Stop-Limit Order: A variation of a stop order in which a trade must be executed at the exact price or better. If the order cannot be executed, it is held until the stated price or better is reached again.

Stop Order: An order to buy or sell when the market reaches a specified point. A stop order to buy becomes a market order when the futures contract trades (or is bid) at or above the stop price. A stop order to sell becomes a market order when the futures contract trades (or is offered) at or below the stop price.
Strike Price: The price at which the futures contract underlying a call or put option can be purchased (if a call) or sold (if a put). Also referred to as exercise price.

Support: The place on a chart where the buying of futures contracts is sufficient to halt a price decline.

Synthetic Futures: A position created by combining call and put options. A synthetic long futures position is created by combining a long call option and a short put option for the same expiration date and the same strike price. A synthetic short futures is created by combining a long put and a short call with the same expiration date and the same strike price.

Systemic Risk: Market risk due to price fluctuations which cannot be eliminated by diversification.

T

Technical Analysis: Anticipating future price movement using historical prices, trading volume, open interest, and other trading data to study price patterns.

Tick: The smallest allowable increment of price movement for a contract. Also referred to as minimum price fluctuation.

Time Limit Order: A customer order that designates the time during which it can be executed.

Time and Sales Ticker: Part of the Chicago Board of Trade Market Profile system consisting of an on-line graphic service that transmits price and time information throughout the day.

Time-Stamped: Part of the order-routing process in which the time of day is stamped on an order. An order is time-stamped when it is (1) received on the trading floor, and (2) completed.

Time Value: The amount of money option buyers are willing to pay for an option in the anticipation that, over time, a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value. Also referred to as extrinsic value.

Treasury Bill: See U.S. Treasury Bill.

Treasury Bond: See U.S. Treasury Bond.

Treasury Note: See U.S. Treasury Note.

Trend: The general direction, either upward or downward, in which prices have been moving.

Trendline: In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the trendline is called bullish; if down, it is called bearish.

U

Underlying Futures Contract: The specific futures contract that is bought or sold by exercising an option.

U.S. Treasury Bill: A short-term U.S. government debt instrument with an original maturity of one year or less. Bills are sold at a discount from par with the interest earned being the difference between the face value received at maturity and the price paid.

U.S. Treasury Bond: Government-debt security with a coupon and original maturity of more than 10 years. Interest is paid semiannually.

U.S. Treasury Note: Government-debt security with a coupon and original maturity of one to 10 years.

V

Variable Limit: According to the Chicago Board of Trade rules, an expanded allowable price range set during volatile markets.

Variation Margin: During periods of great market volatility or in the case of high-risk accounts, additional margin deposited by a clearing member firm to an exchange clearinghouse.

Versus Cash: See Exchange For Physicals.

Vertical Spread: Buying and selling puts or calls of the same expiration month but different strike prices.

Volatility: A measurement of the change in price over a given time period. It is often expressed as a percentage and computed as the annualized standard deviation of percentage change in daily price.

Volume: The number of purchases or sales of a commodity futures contract made during a specified period of time, often the total transactions for one trading day.

W

Warehouse Receipt: A document certifying possession of a commodity in a licensed warehouse that is recognized for delivery purposes by a commodity futures exchange.

Wash Trading: Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without resulting in a change in the trader's market position.

Writer: The issuer, grantor, or maker of an option contract.

X

Y

Yield: A measure of the annual return on an investment.

Yield Curve: A chart in which the yield level is plotted on the vertical axis and the term to maturity of debt instruments of similar credit worthiness is plotted on the horizontal axis. The yield curve is positive when long-term rates are higher than short-term rates. However, when short-term rates are higher than yields on long-term investments, the yield curve is negative or inverted.

Yield to Maturity: The rate of return an investor receives if a fixed-income security is held to maturity.

Z