NQ Trader , Trading Glossary

Trading Glossary
A
Aggregation
The grouping of futures positions by one particular trading entity in order to determine the combined value and potential future speculative limits.
Arbitrage
When a price discrepancy arises in a single commodity in two different markets, arbitrage is a way of capitalizing on this discrepancy by purchasing a commodity in the lower market and selling it in the higher market.
Arbitration
A process whereby two parties ask a neutral third party to resolve a dispute for them. In this way, the two parties will respect the decision of the third party as being unbiased and inherently fair. Generally, the NFA handles commodities disputes.
Associated Person (AP)
As long as the individual is affiliated with a registered member of the Commodity Futures Trading Commission, the associated person may handle customers, customer funds, or orders for an Introducing Broker, Commodity Pool Operator, or Futures Commission Merchant.
At-the-Money Option
The incidence of an option having an equal strike price to the current market value of the actual commodity.
B
Basis
This refers to the difference between the agreed to futures price of a particular commodity and the actual current cash price of the commodity. Frequently, a basis is used to settle cash payouts.
Bear Market
A market that displays an overall downward trend in pricing. A bear market is always occasion for glum news and lethargic trading action.
Bear Spread
A tricky financial maneuver wherein a party sells a futures contract only to purchase the deferred contract in order to profit from the lower sales price.
Bid
The stated price at which a buyer hopes to acquire a particular commodity.
Broker
A licensed individual or financial entity that handles financial transactions, including futures contracts and futures options. A broker can either have ordinary, unaffiliated general public clients, or can work on behalf of other brokers or financial institutions.
Bull Market
A market that displays an overall upward trend in pricing. Bull markets generally cause extreme excitement, and in some cases can lead to inflation and overinvestment. However, while it lasts, a bull market is a happy, upbeat affair, resulting in money for practically everyone.
Bull Spread
Another tricky financial maneuver, similar to a bear spread, wherein a party buys a nearby futures month and then sells a deferred month in order to profit from price differences.
Butterfly Spread
An arrangement where two so-called opposing inter-delivery spreads share the same center delivery month.
C
Call Option
A term referring to bids on futures options where the purchaser believes that the commodity will attain a higher strike price in the future months. As with all options, the buyer is not required to act on this strike price.
Carrying Broker
This individual clears all trades, and is usually part of a clearinghouse. The individual is also always a member of a futures exchange.
Canceling Order
This order removes a prior order by the same customer.
Carrying Charge
(also known as cost of carry or carry) In abstract terms, especially for commodities such as interest rates, a carrying charge reflects expenditures undertaken on behalf of maintaining the complex financial instruments. For tangible commodities, this charge usually reflects storage fees and insurance costs for the actual commodity.
Carryover
Any physical commodities which are not consumed and remain in storage at the end of the marketing year. Oilseed and grain frequently are left over, and therefore require a lift into the following year.
Cash Commodity
Also known as actuals. The tangible commodity, not merely the contract on the commodity.
Cash Contract
This contract is a guarantee of the immediate or future delivery of the commodity in question.
Cash Market
An actual physical location where the commodities are traded, as distinguished from a trading floor. An example would be a livestock yard, as opposed to the pit at the Chicago Mercantile Exchange.
Cash Settlement
When futures contracts and futures options finally expire, the participants can choose to settle the contracts via cash instead of actual physical commodities.
Charting
Also known as technical analysis. Charting is essentially a graphical display of data in the form of charts or graphs that allow traders to plot out potential future movements of a commodity based on its past performance, total volume, and other factors like open interest. The data that goes into the charting can take a significant amount of time to compile.
Circuit Breaker
Much like it sounds, a circuit breaker helps keep the market from financially overheating by halting trades setting price limits on exceedingly high volume intra-day market sessions which either show exceptional growth or exceptional losses.
Clear
Generally, this is performed on a daily basis, and allows clearinghouses to rectify all their records and make any necessary margin adjustments, whether owed or owing. Another way to think of a ‘clear’ is a kind of massive checkbook balancing performed on all trades and transactions.
Clearinghouse
Technically a separate part of an exchange market, but a vital member all the same, clearinghouses keep track of all margin fees and payments and frequently act as a safe third party for both buyers and sellers, guaranteeing that all trades are performed according to the appropriate rules of the marketplace. The clearinghouse is also responsible for regulating delivery of commodities, settling all accounts to the satisfaction of the rules, and ultimately reporting all trade data.
Clearing Member
The individual who is ultimately responsible for making sure that everyone lives up to their agreements, especially when it comes to customers of a particular financial institution or company. The clearing member is also described as being a member of the exchange’s clearinghouse division.
Closing Price
Also known as the settlement price, this is the final amount of money that will be exchanged between buyer and seller.
Closing Range
A span of prices at which various trades were conducted right at the very end, or close, of the market.
Commission
The fee a broker receives for completing a transaction. Usually this fee is paid by the customer directly to the broker.
Commodity
A universal good or concept that has the same recognizable value regardless of nation, region, or currency. Because a commodity will have the same value wherever it appears, it can usually be used as an indicator of global economic health or prosperity, or conversely, as an indicator of troubled markets.
Commodity Exchange Act (CEA)
A federal law which puts forth and authorizes the basic structure of federal regulation of all trades on futures.
Commodity Futures Trading Commission (CFTC)
Established in 1974, this body oversees all exchange markets, and provides the administration and general upkeep of the Commodity Exchange Act.
Commodity Pool
Also known as a Pool. This form of investing allows multiple parties to ‘chip in’ to one commodity in order to make the minimum contract quantity. The method is useful for smaller investors or those individuals who wish to diversify their portfolio without expending significant amounts of cash.
Commodity Pool Operator (CPO)
The person in charge of overseeing the commodity pool funds, and making adjustments as necessary.
Commodity Trading Adviser (CTA)
This individual is paid to spout useful advice about the feasibility of investing in any particular futures commodity contract or option, and frequently has the additional power of being able to make changes to a customer’s account. Generally, a qualified CTA has years of investing experience of his or her own, and can therefore offer helpful insights and tips into how to best to approach a new offer or bid.
Confirmation Statement
The Futures Exchange Merchant is responsible for sending this statement to the customer advising them of the number of contracts and the price of the contracts that were traded in a given period.
Contract Market
Grouped around a particular commodity, contract markets are picked by the Commodity Futures Trading Commission to handle all futures contracts. This trade board is also frequently referred to as an exchange.
Contract Month
Also known as the Delivery Month. Essentially, the month at which the commodity specified in the futures contract is scheduled to be delivered.
Convergence
The somewhat unpredictable but occasionally pleasing trend of futures contract prices and actual commodity market prices to approach each other as the futures contract is due to expire.
Covered Option
A term referring to the ability of an individual to cover their put option or short call by actually buying the commodity or futures contract.
Crop (Marketing) Year
While each crop year is based on the individual agricultural commodity it is linked to, crop years are defined by the time between harvests. In the Northern hemisphere, new marketing years tend to begin in October or November, and end somewhere in the summer months of July or August.
Crop Reports
An estimate of expected yield, actual planted acreage, and anticipated production of various agricultural commodities, with production statistics from previous years thrown in for comparison purposes. The report is prepared by the U.S. Department of Agriculture.
Cross-Hedging
A clever way to mitigate losses, cross-hedging is the practice of using a futures contract to cover a risky cash commodity for which there is no futures contract. The two commodities generally have to be related in terms of the trend of their pricing for the strategy to be effective.
Crush Spread
Also known as a reverse crush. In a move that appears to cancel itself out, an investor or trader purchases soybean futures and then simultaneously sells soybean oil and meal futures.
Current Yield
A ratio that measures the worth of the current market price of the debt instrument to that of the initial coupon.
D
Day Order
An order that expires on the day it was entered due to a lack of closure.
Day Trader
An individual who finishes a complete trade, including bidding and offering, in one day’s trading session.
Default
A failure to complete a futures contract, either by not fulfilling a margin call, or not delivering or receiving the goods as promised.
Deferred Delivery Month
The easiest way to conceptualize of a deferred delivery month is that it is much farther away than the so-called ‘nearby’ futures delivery months.
Deliverable Grades
Also known as contract grades. Rules designed by the exchanges to guarantee certain marks of quality and of procedure when delivering commodities as part of a fulfilled futures contract. The deliverable grades frequently are accompanied by potential discounts or premiums for those commodities that do not meet the desired grade as described in the futures contract.
Delivery
The official term for the transfer of a commodity from the seller to the buyer of the futures contract. Many buyers and sellers prefer to settle delivery via cash only.
Delivery Month
The delivery of the commodity may take place at any time during the described delivery month.
Delivery Points
An exchange establishes the physical boundaries where a certain commodity may be delivered. An excellent example of this is steel futures and commodities, which recently had three additional ports in the U.S. added to its official list of delivery points by the London Metals Exchange.
Delta
In math, the symbol that represents the rate of change. When applied to commodities, delta generally represents the change in option premium prices. Frequently, delta is used to represent the probability that the option will ultimately be priced exactly at the real market rate once it comes into maturity.
Demand, Law of
One of the fundamental governing principles of all market trade, the law that describes how many people desire a particular product, and how that demand either increases or decreases price.
Derivative
In math, a derivative is based on the rate of change of other formulas. In commodities trading, a derivative is a financial instrument which essentially bands together several separate values taken from commodities, other debt instruments, even index fluctuations, and then forms a tool that can be priced in such a way to minimize or hedge against other risks or investments.
Designated Self-Regulatory Organization (DSRO)
A Futures Commission Merchant is occasionally the member of more than one Self-Regulatory Organization, prompting the group of affiliated SRO’s to decide which among them shall be ultimately responsible for the usual tasks of smoothly running the FCM. The NFA frequently is selected for all FCMs that are not part of an exchange.
Differentials
The same commodity occasionally has differences in price depending on the grade, class, and delivery location. These differences are described as differentials.
Disclosure Document
This document is occasionally required from CPOs to their customers, and should provide a description of their performance, fees, and general business strategy, especially in regard to how they approach trading and other market policies.
Discount
A discount can be literally applied in the case of a commodity that fails to meet a certain grade standard, or it can be used as term to describe different futures that are trading at a lower rate than a previous future.
Discretionary Account
also known as a Managed Account. An account that is controlled by a broker or Commodity Trading Adviser, but is not technically owned by them. The authority to take action on these accounts is usually granted via a written power of attorney process by the initial owner of the account.
E
Econometrics
Econometrics utilizes mathematical and statistical models with real economic data to validate or disprove economic theories and help formulate or solve basic economic problems.
Electronic Order
A broker is not required for the placement of an electronic order; however, a system affiliated with the official trading or exchange houses is required in order to make the order go through.
Electronic Trading Systems
Equilibrium Price
Neither bearish nor bullish, the equilibrium price is instead the ideal balance between the market price and quantity of a commodity, where the supply and demand are exactly even.
Equity
A way to describe a futures trading account if all available positions were offset by the actual contemporary market price.
Eurodollars
A term describing the status of United States dollars that are currently deposited in a bank outside of the jurisdiction of the United States. This institution can either be a foreign bank, or an affiliated institution of a U.S. bank that is technically in another country.
European Terms
Essentially, the foreign currency unit per dollar. This is needed in order to set or quote exchange rates.
Exchange for Physicals (EFP)
Also known as versus cash. In the simplest terms, two traders agree to exchange futures in lieu of cash. Frequently, this type of transaction is entered into by two hedgers.
Exercise
If the holder of a call option wants to buy the futures contract on which the option is based, or conversely if the holder of a put option wants to sell the futures contract on which the put option is based, this action is described as ‘exercise.’
Expiration Date
The last day on which the holder of an option can get some ‘exercise.’
F
Face Value
The actual numerical amount printed on a certificate or other representation of value, or the original value of a debt.
Federal Funds
A way to describe the funds that are deposited by member banks at the Federal Reserve. Frequently, the funds are being loaned from one member bank to another.
Federal Funds Rate
The interest rate for using federal funds.
Federal Reserve System
Created in 1913 by the Federal Reserve Act, the Federal Reserve System helps ensure that banks will always be able to protect their investors by keeping reserve funds on hand. When a bank is ‘insured’ by the Federal Reserve, all depositors who have funds less than $100,000 are guaranteed that their funds will be available for withdrawal.
Feed Ratio
A method of comparing how much it costs to feed livestock to how much profit livestock actually produce at the time of their sale on the exchange.
Fill or Kill
The term used to describe a price limit order initiated by a customer which must either be immediately accepted or turned away.
Financial Instrument
A somewhat murky sounding term, there are actually only two types of financial instruments which deal with ways to structure debt and equity. A debt instrument is an another term for a loan with interest.
First Notice Day
When a futures contract requires fulfillment of the delivery of the commodity, the first day that this is possible is referred to as the first notice day. The delivery period is usually about a month in total, depending on the particulars of the contract. The seller gives this notice to a clearinghouse, which correspondingly informs the buyer on their behalf.
Floor Broker
The individual who physically cries out bids and offers on behalf of others.
Floor Trader
A member of the exchange who trades entirely for his own account in the pit.
Forex Market
The Foreign Exchange market, where currency prices are adjusted in accordance to other currency values. It can also function as a general meeting place for international business, although currency evaluation plays a huge role in its day to day activities.
Forward (Cash) Contract
This agreement binds a seller into delivering to a buyer. The particulars of the commodity, the delivery date, and all other specifics may be written to suit the individual needs of the occasion, and can incorporate unusual or special terms.
Full Carrying Charge Market
Essentially, this term refers to a market that takes into account the differences in price between storage, interest and insurance depending on the particular delivery month of the commodity.
Fully Disclosed
While an FCM carries the account, the account is clearly named after the individual owner.
Fundamental Analysis
Much like it sounds, this type of analysis is a predictor of potential price trends of a particular commodity or group of commodities based on past supply and demand history.
Futures Commission Merchant (FCM)
Also known as a Wire House or Commission House. Somewhere between a broker and an individual, an FCM can buy and sell futures and options for clients, whether those clients are individuals or large companies.
Futures Contract
An agreement between a seller and a buyer to provide a certain commodity at a certain future date for a specified price. Unlike an option, both parties are required to live up to the terms of the agreement.
Futures Exchange
The forum for buying and selling of futures and options. An exchange provides the regulations for the transactions carried on within its walls, but it does actually gain any financial benefit from these transactions.
G
Gamma
A kind of second derivative of delta. Essentially a way to measure how fast the rate of change changes, based on futures prices.
GLOBEX
The global electronic trading system.
Grain Terminal
A method of storage and transport for physical grain supplies. Frequently, this terminal takes the shape of an enormous elevator which can interconnect with either ships or railroads.
Gross Domestic Product (GDP)
Usually measured in the period of one year, this is the combined value of all the services and goods that originate from a single economy.
Gross National Product (GNP)
This is a formula that takes the GDP, adds it to all the money earned by the residents of that country from investments they made in other countries, then subtracts any income that was generated in the domestic economy by non-residents.
Gross Processing Margin (GPM)
Specific to soybeans, this measures the cost shortfalls or gains between how much the raw product actually cost versus the income generated from processed meal and oil.
Guaranteed Introducing Broker
Essentially a letter of recommendation from an FCM to his or her clientele, assuring them that introducing broker’s actions will be handled by the FCM, should any financial or other responsibilities arise during the introducing broker’s dealings with those clients.
H
Hedger
In other circles, a hedger might be described as a ‘nervous Nellie.’ Essentially, this is a type of investor who has very little faith that his investments will actually match what he plans to pay for them in the futures contract. Hedgers survive by constantly buying and selling equivalent value commodities in order to ensure an even financial payout.
Hedging
The action of a hedger (see above).
High
Much like a temperature reading, the price ‘high’ is recorded daily for each futures or options agreement.
Hog/Corn Ratio
This is another version of the feed ratio, except it is concentrated principally on hogs and corn.
Horizontal Spread
In the vein of hedging, a horizontal spread is buying and selling the same type of put or call option, with the only difference between the two options being their particular ending month.
I
In-the-Money Option
Also known as intrinsic value. An option that is performing at such a rate that it is making money for the contract holder, whether the option is a put or a call.
Independent Introducing Broker
Unlike a guaranteed introducing broker, an introducing broker has to actually be responsible for minimum money requirements.
Initial Margin
The absolute minimum amount of money required from an investor or other active member in trading in order to buy or sell a future.
Intercommodity Spread
Two separate but vaguely related futures markets that happen to share the same delivery month. They are related because the same individual sells one while immediately buying the other.
Interdelivery Spread
Also known as intramarket spread. Much like an intercommodity spread, except that the transaction takes place on the same exchange market.
Intermarket Spread
Almost identical to the interdelivery spread, but in this case the transaction takes place in two entirely separate markets.
Introducing Broker (IB)
Somewhere between a guaranteed introducing broker and an independent introducing broker, a plain introducing broker an do little but accept orders, and then pass on the bulk of the work to other registered individuals.
Inverted Market
An unusual disparity between two delivery months of the same commodity.
Invisible Supply
Occasionally, commodities are ‘hidden’ in the storage of manufacturers and retailers, and can’t be easily counted or inventoried. These commodities are supposed to be part of the market, but may simply be impossible to accurately count.
L
Last Trading Day
After this time, no further trading may take place on a particular option or future.
Leverage
With very little capital, an individual may actually be able to oversee or manipulate large currency amounts of a particular commodity.
Limit Order
The customer may specify an order in which they limit the time period of the order or the price.
Liquidate
Also known as Offset. Essentially, the action of buying or selling a contract or position.
Liquidity (Liquid Market)
A term describing a market that has enough unclaimed properties and a corresponding number of sellers and buyers to facilitate trade without causing a significant increase or decrease in the overall price.
Loan Program
A type of financial agreement between farmers and the government, which allows farmers to essentially take out money based on their expected crop yields of the following year.
Loan Rate
This refers to the money loaned to a farmer based on an individual unit of an agricultural commodity.
Local
An exchange member who is trading for his account only.
Long
An investor or trader who has purchased either futures options or futures contracts.
Low
Again, much like the weather, the lowest recorded daily price for an individual commodity.
M
Maintenance Margin
The minimum amount of money due from a customer to keep his claim on a particular option or future.
Managed Futures
Professionals who quietly handle client assets using the futures markets as an investment tool.
Margin
A type of performance bond used by buyers and sellers to guarantee their participation and the subsequent performance of all parties involved in a futures and options contract.
Margin Call
If a customer dips below the minimum margin amount, he may receive a notification from the clearinghouse.
Market Order
The official notification to buy or sell a given option or future when it is available, regardless of price.
Market Profile
A professional method of comparing and contrasting price data, which is frequently utilized by traders.
Market Reporter
The individual who records all pit prices. This person usually receives a paycheck from the exchange.
Marking-to-Market
A daily accounting of the margin account of an individual client, based on the performance of the day’s trade.
Money Supply
Much as it sounds, this is a measure of the total available funds in the economy. It is measured not only by flowing currency, but by all recorded bank deposits and savings.
Moving-Average Charts
Essentially, a way to quickly calculate average prices by dividing by the number of days within a given time period.
Municipal Bonds
These are debts put forth by official government bodies, usually of a local or state, as opposed to federal or international, affiliation.
N
National Futures Association (NFA)
The favored DSRO of most FCM’s.
Nearby Delivery Month
Also known as a Spot Month. The delivery month of a futures contract that is chronologically soon.
Net Asset Value
A way of measuring each person’s relative value of participation in a commodity pool scenario.
Net Performance
A method of measuring the net increase or decrease of all asset value.

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O
Offer
The reciprocal action to bidding.
Omnibus Account
An account managed by an FCM under the name of the FCM, even if the account is actually owned by other individuals.
Open
The very first moment when trading can officially begin.
Opening Range
An inverse to the closing range prices, the opening range is a measure of where prices began in the course of the trading day.
Open Interest
All the futures and options that have yet to be fulfilled or offset. Even though all these contracts have buyers and sellers, interest is calculated based on their current position.
Open Market Operation
The term for the sale and purchase of government notes, bills, and bonds.
Open Outcry
The action of the traders who verbally offer and bid on futures and options.
Option Buyer
Also known as a Holder. Basically, the individual who buys a put or call option.
Option Contract
Unlike a futures contract which requires the buyer to purchase a commodity at a certain time, an options contract gives them the right, but not the obligation, to do so.
Option Premium
The amount of money a seller receives from a buyer when an option is initially sold.
Original Margin
The required amount of money from a futures investor or trader in order to enable him to participate in purchasing and selling futures.
Out-of-the-Money Option
At expiration, a put which is higher than expected, or a call which is lower than expected, resulting in losses to the holder of the option.
Over-the-Counter (OTC) Market
Similar to a ForEx market, an over-the-counter market is a forum for exchange for foreign currency and other items, except it does not take place in an official brick and mortar venue, but rather purely over telecommunication.
P
Par
No significant growth or decrease in value from the face value of a particular security.
Pit
The physical area of an exchange where individuals verbally pitch bids and offers.
Point-and-Figure Charts
Relatively visually unengaging, a point and figure chart demonstrates very minimal price changes, regardless of whether it’s a day or a year.
Position
The term for a financial commitment.
Position Limit
The Commodities Future Trading Commission determines how many positions any individual may hold.
Position Trader
Unlike a day trader, a position trader engages in longer form trades that may take several trading days to fully resolve.
Premium
Usually refers to the price that a seller receives from a buyer at the time of a futures transaction, but can also refer to changes in grades or actual market prices that exceed the futures contract.
Price Discovery
A term describing how the market clinches the particular cost of a commodity.
Price Limit
Set by the exchange, a limit in either growth or decline of the cost of a particular future.
Price Limit Order
This is set by the customer, and determines the price at which a trade will occur.
Primary Market
Usually a commercial bank or a dealer who has been vetted and approved by the Federal Reserve.
Prime Rate
Banks set this rate of interest for their favored clientele.
Producer Price Index (PPI)
A way to measure how much it cost to manufacture items during the prior month.
Pulpit
The structure where market reporters record and deposit data on the trades happening around them.
Purchase and Sale Statement (P&S)
At the termination of a futures contract, an FCM sends out a statement to their customers detailing the total financial charges associated with this transaction.
Put Option
Generally, an option that expects a commodity’s price to decline from the market price to a lower specified strike price. The holder may or may not choose to exercise this option.
Q
Quotation
Refers to a time-sensitive price for a particular commodity or contract.
R
Range
A way to compare the performance of a commodity over a set period of time by highlighting the low and high prices.
Regulations (CFTC)
The official rules that make possible the enforcement of the CEA.
Reciprocal of European Terms
Essentially the reverse of European terms, whereby foreign currency is measured in terms of U.S. dollars.
Reparations
When damages of a civil nature occur, the Commodities Futures Trading Commission uses ‘reparations’ to recover these funds.
Reportable Positions
Trading firms and even individual investors or traders must begin to report their open contracts to an authorized exchange if they exceed a certain pre-determined number.
Repurchase Agreements (or Repo)
Generally conducted for the purpose of government bonds, an agreement between the seller and the buyer that the seller will repurchase the sold item at a later time.
Reserve Requirements
Those financial institutions that are a part of the Federal Reserve system must maintain a minimum amount of money on hand to meet their obligations as stated under the Federal policy.
Resistance
A threshold for prices which, while not officially demarcated, proves difficult to conquer.
Reverse Crush Spread
Exactly as it sounds, this policy reverses the crush spread by selling soybean futures and purchasing the meal and oil futures.
Round Turn
A kind of negating transaction which involves both the buying of and subsequent sale of futures which balances itself out.
Rules (NFA)
As the usual DSRO, the NFA puts forth these series of guidelines to help administer its members.
Runners
Literally, individuals who must scurry from the phone banks with orders from clients to give to the pit brokers for fulfillment.
S
Scalper
Much like a day trader, a scalper completes all his transactions in one day, although he tends to accumulate very small profits, and can occasionally attempt a multi-day trade.
Segregated Account
Also known as Customer Segregated Funds. Essentially, a way to categorize the money from customers as a separate entity from the money of the trading firm.
Self-Regulatory Organization (SRO)
The body responsible for ensuring that rules are followed during financial transactions.
Selling Hedge (or Short Hedge)
A way to balance any financial risk by selling those contracts that the holder believes will not fulfill their full value at the time of their maturity.
Settlement Price
Equivalent to closing price.
Short
An endearing nickname for an individual who intends to buy a cash commodity, or has in the past made a sale of futures.
Speculator
Part analyst, part hedger, a speculator buys based on their beliefs about what price fluctuations will occur in the future.
Spot
A term that encapsulates the belief that a tangible commodity will be delivered immediately.
Spread
A way of describing the difference between separate but similar commodities.
Spreading
A form of hedging on two separate but similar commodities, except that it takes place over separate delivery months, and the profit is only realized once the transaction is complete.
Steer/Corn Ratio
Much like the hog corn ratio and the feed ratio, this method measures how much it costs to feed cattle on a specific amount of corn.
Stop-Limit Order
A limitation on when a particular trade can occur based on a specific price.
Strike Price
Also known as exercise price. The predetermined figure at which a contract or option becomes viable.
Supply, Law of
A reciprocal and equally fundamental pair to the Law of Demand, the law of Supply dictates how supply influences a particular item and its corresponding cost.
Support
A fixed point, usually represented in a visual format such as a chart, where a potential futures value crash is averted due to enough volume purchases.
T
Technical Analysis
An analytical approach to understanding the interaction of futures markets based on a variety of different mathematical tools and market factors.
Tick
Also known as a Minimum Price Fluctuation. The agreed minimum at which a particular designated commodity can be traded. This is especially useful for commodities that trade in large contracts, such as cocoa or other agricultural products.
Time Limit Order
In the same vein as stop limit orders and price limit orders, a time limit order is also designated by the customer. The order may only be sold during a limited time.
Time-Stamped
A particular order will bear two distinct time stamps, relating to the time when it first arrived on the floor, and when the transaction was finally finished.
Time Value
Also known as extrinsic value. A tricky measurement based partially on faith and partially on market factors. Essentially, a buyer agrees to pay an additional amount of money for a particular option in the belief that over a certain period of time it will increase in its total value.
U
Uncovered Option
Also known as a Naked Option. Essentially, an option that can’t be hedged or otherwise ‘saved’ by the last minute buying or selling of another future. The option can either be a put or a call.
Underlying Futures Contract
If the holder of an options chooses to exercise his option, he then must accept the terms of the futures contract that the option is based upon.
U.S. Treasury Bill
The shortest term of all government financial instruments, with an expiration of one year. Generally, these bills are sold at less than face value; when the government buys them back, they are purchased at their face value, thereby giving the buyer incentive to purchase them in the first place.
U.S. Treasury Bond
The longest term of all government financial instruments, with an average expiration date of more than 10 years.
U.S. Treasury Note
Between a treasury bill and bond lies the note, which has an expiration period between one and ten years.
V
Variable Limit
Also known as a variable price limit. This allows for exceptions to the minimum or maximum price restrictions set by the commodities exchange. Usually, these variable prices are limited to a period of one trading day, and are set in order to allow for the trade of one particular high quantity commodity.
Variation Margin
A daily or sometimes intra-day payment method that reduces potential substantial devaluations for clearing house members and clearing houses who hold risky positions or securities. This margin payment is owed by the members of a clearing house to the clearing house itself in exchange for keeping the risky securities, and protects the clearing house from a sudden financial collapse.
Vertical Spread
An investment strategy which allows a trader to purchase two options that have identical expiration dates, but different strike prices.
Volatility
A measure of risk of the likelihood that a security or index will maintain a particular set value. A higher volatility generally corresponds to a much ‘riskier’ security, although the value of the security can either increase or decrease dramatically. A lower volatility rating is indicative of a steadier security with a relatively predictable growth pattern.
Volume
The total number of shares traded during a set period of time. The sale of 300 shares during a trading session from one seller to a buyer will result in a total volume of 300.
W
Warehouse Receipt
Also known as a vault receipt. A method of guaranteeing the quality and amount of a particular futures commodity without having to deliver the actual goods themselves. This type of receipt is frequently used when trading in precious metals.
Wire House
An institution which is linked by its communication methods, but may not necessarily have one central brick and mortar location, such as a series of bank branches.
Writer
Also known as an option grantor or option seller. A writer is the individual who profits from selling options, or is the person who creates a trust made up of assets.
Y
Yield
The amount of money that will return from an investment. Can be measured in several different ways, and with different time periods, although it is usually measured annually.
Yield Curve
Compares interest rates of bonds with the same credit ranking but different maturity dates at a fixed point in time. Also known as Positive Yield Curve and Negative Yield Curve.
Yield to Maturity
The anticipated return rate for a bond held until it matures. Involves calculations of coupon interest rate, current market price, par value, and time to maturity.