Futures Trading Terms Glossary

Welcome to the RJO Futures trading terms glossary. Within this glossary, you will find an expansive list of trading terms covering commodity, option, and futures trading terminology. Bookmark this section as a quick reference for definitions of trading terms as you browse the Internet and our site for more information on futures and options trading within the financial and commodities markets.

A

Abandon

This occurs when an option holder chooses not to exercise or offset an option.

Access

The New York Mercantile Exchange’s electronic trading platform, which is only available for futures contract trading during U.S. evening hours.

Accrued Interest

Interest that is earned between the most recent interest payment and the present date, but has not yet been paid to the lender.

Actuals

These are physical products that have been bought and sold in the spot market.

Add on Method

A method where the interest to be paid is added onto the principal at maturity or interest payment dates.

Adjusted Futures Price

The cash-price equivalent reflected in the current futures price, calculated as futures price times conversion factor for the particular financial instrument being delivered (such as a bond or a note).

Adjusted Total Equity

AKA: ATE The remainder after subtracting any funds not cleared from an account’s total equity.

Aggregation

The combination of all futures positions that are owned or controlled by one trader or a group of traders to determine reportable positions and speculative limits.

All Could

An order that has been only partially executed. This often applies to a limit order that could not completely be filled, due to a lack of interest in buying or selling at that price.

Allowances

The discounts (premiums) that a buyer is allowed for the grades or locations of a commodity lower (higher) than the par or basis grade or location specified in the futures. Also called differentials.

Alternate Delivery Procedure

AKA: ADP A contract delivery method that permits buyers and sellers to settle delivery commitments, independently of the exchange.

Approved Delivery Facility

A bank, stockyard, mill, store, warehouse, plant, elevator, or other institution that is exchange-authorized for delivery of exchange contracts.

Arbitrage

The simultaneous purchase and sale of similar commodities in different markets to profit from price discrepancies.

Arbitration

An informal hearing to settle disputes between members, or between members and customers.

Ask

The price at which a party is willing to sell, also known as the offer price.

Ask Size

The number of futures or options contracts offered at a quoted ask price.

Assignment

To make an option seller complete the requirements of the option contract. For a call (put) option, the writer would have to sell (buy) the underlying security at the stated strike price.

Associated Person

AKA: AP Participants within the futures market who are involved in the solicitation or facilitation of transacting customer orders, maintaining discretionary accounts, or true participation in the futures market.

At the Market

An order to buy or sell at the best price obtainable at the time the order is received. See 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

Back Months

Futures delivery months that have expiration or delivery dates furthest into the future. These are also called deferred or forward months.

Backwardation

A futures market in which the front month is higher in price than the back months. It is the opposite of Contango. See Inverted Market.

Balance of Payments

AKA: BOP A summary of transactions between one country and all other countries during a specified time period.

Bar Chart

A chart that graphs high, low, and settlement prices for a specific trading session over a given period of time—which is used to spot trends and patterns in technical analysis.

Base Currency

The first currency quoted in a currency pair on forex, which is typically considered the domestic currency or accounting currency.

Basis

The difference between the current cash price and the futures price of the same commodity.

Basis Grade

The minimum accepted standard that a deliverable commodity must meet for use as the actual of a futures contract—also known as par or contract grade.

Bear

One who believes prices will move lower. See Bull.

Bear Market

A market in which prices are declining.

Bear Spread

Selling the nearby contract month and buying the deferred contract, to profit from a change in the price relationship.

Bid

An expression of being willing to buy a commodity at a given price; the opposite of Offer.

Bid Size

The number of futures or options contracts bid at a certain price.

Book Entry Securities

Electronically recorded securities that include each creditor’s name, address, Social Security or tax identification number, and dollar amount loaned, (i.e., no certificates are issued to bond holders, instead, the transfer agent electronically credits interest payments to each creditor’s bank account on a designated date).

Break

A rapid, sharp decline in price.

Bretton Woods Agreement

A 1944 agreement (made in Bretton Woods, New Hampshire), which established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at U.S. $35 per ounce. The agreement was overturned by President Richard Nixon in 1971, and he established a floating exchange rate for the major currencies.

Broker

A firm or individual that executes futures and options orders on behalf of other parties.

Brokerage Commission

Brokerage Commission – also referred to as a brokerage fee, is the fee charged by a broker to a customer for executing a trade. While often referred to in the same breath, a commission and a fee are two totally different things. A brokerage commission is the money the broker makes when he or she places a trade or other transaction on behalf of the account owner. A brokerage fee on the other hand, is a flat rate the agency or clearing firm charges for the management of the account, this is usually a percentage of the account value. Many full-service brokerages collect a large percentage of their profit from commissions. Commission fees range widely from brokerage to brokerage, so it is important to find the one that works best for you.

Bull

One who believes prices will rise. See Bear.

Bull Market

A market in which prices are rising.

Bull Spread

Buying the nearby month and selling the deferred month to profit from the change in the price relationship.

Bust

The undoing of a trade that previously was reported in error.

Butterfly Spread

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

Buy

A transaction that indicates you wish to make a purchase or to go long. Opposite of selling or going short.

Buy In

Covering or closing out a short position. See Offset.

Buy On Close

Buying at the end of the trading session, at a price within the closing range.

Buy On Opening

Buying at the beginning of the trading session, at a price within the opening range.

C

COM Membership

A Chicago Board of Trade membership that allows an individual to trade contracts listed in the commodity options market category.

CQG

This RJO Futures quote and trading platform, provided by CQG (Comprehensive Quotes and Graphics), is a powerful execution platform for traders who don’t need technical analysis tools. It includes a depth-of-market trading order execution interface, an Orders & Positions view, and a Quote Board—among other helpful tools.

Cabinet Trade

Allows options traders to liquidate deep-out-of-the-money options by trading the options at a price equal to less than one tick, this often amounts to a price one half of one percent of the face value. A cabinet trade is used as the final nail in the coffin of what is more or less a useless option in order to help recoup a faction of the losses and is the lowest possible tradable price for the option. It should also be noted that a cabinet trade cannot be used to initiate short or long positions. It’s basically an “end all be all” last resort.

Call

An option contract that gives the owner the right (but not the obligation) to buy a security or commodity at a predetermined price within a given time period. Also, an exchange-designated buying and selling period, during which trading is conducted to establish a price range for a particular time.

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.

Cancel

AKA: Replace To modify an existing pending or working order by price, type, or quantity.

Cancel Order

To abort a pending or working order. If a trader attempts to cancel an order that has already been executed, but has not yet been reported as having been filled, it will be “too late to cancel†when the order is reported as filled.

Car

Derived from when quantities of the product specified on a contract often corresponded to the quantity carried in a railroad car, this is a loose, quantitative term sometimes used to describe a contract (e.g., "car of bellies").

Carrying Broker

A member of a futures exchange (usually a clearinghouse member) through which another firm, broker, or customer chooses to clear all or some trades.

Carrying Charge

The cost of storing a physical commodity, such as grain or metals, over a period of time. Carrying charge includes insurance, storage and interest on the invested funds, as well as other incidental costs. It is also referred to as Cost of Carry.

Carryover

Grain and oilseed commodities not consumed during the marketing year, which remain in storage at year’s end. The 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, as distinguished from a futures commodity. It is 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. See Spot and Forward Contract.

Cash Settlement

Settling certain futures or options contracts in cash—rather than delivery of the commodity.

Central Bank

A financial institution that has official or semiofficial status in a federal government. They are used by governments to expand, contract, or stabilize the supply of money and credit. For example, the U.S. central bank is the Federal Reserve, and the ECB (European Central Bank) manages monetary policy for the European Union.

Certificate of Deposit

AKA: CD A time deposit with a specific maturity evidenced by a certificate.

Certified Stocks

Quantities of commodities that are designed and certified for delivery by an exchange, under its trading and testing regulations at delivery points specified and approved by the exchange.

Charting

The use of graphs and charts to analyze market behavior and anticipate future price movements in the technical analysis of futures markets. Charting is used to plot price movements, volume, open interest, or other statistical indicators of price movement. See Technical Analysis.

Cheapest to Deliver

Determining which cash debt instrument is most profitable to deliver against a futures contract.

Circuit Breaker

Trading halts on equities and derivatives markets to provide a cooling-off period during large, intraday market declines set at 7%, 13%, and 20% of the closing price for the previous day.

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 members.

Cleared Funds

Bank wire transfers and cashier’s checks drawn on U.S. banks represent cleared funds.

Clearing Margin

Clearing margins are financial safeguards that ensure clearing members (usually companies or corporations) perform on their customers’ open futures and options contracts. Clearing margins are distinct customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers. What it boils down to, clearing margins are liquid funds that brokerages and othering clearing firms must have instant access to in order to guarantee the completion of transactions with customers. They must have enough money to be able to pay out all open positions on accounts, should the client decide to sell their position.

Clearing Member

A member of an exchange clearinghouse, responsible for the financial commitments of its customers. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

Clearinghouse

An agency or separate corporation of a futures exchange that settles trading accounts, collects and maintains margin monies, regulates delivery and reports trade 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.

Clerk

A member’s employee who has been registered to work on the trading floor as a phone person or runner.

Close

The end of a trading session. Trading resumes upon the opening the following business day. Sometimes used to refer to the closing price. See Open.

Closing Price

See Settlement Price.

Closing Range

A range of prices at which futures transactions took place during the close of the market.

Commercial

An entity involved in the production, processing, or merchandising of a commodity.

Commercial Stocks

Commodities that are in storage in public and private elevators or warehouses at important markets and afloat in vessels or barges in harbors and ports.

Commission

A fee charged by a broker to a customer for executing a transaction. Also referred to as brokerage fee.

Commission House

See Futures Commission Merchant.

Commitment

When a trader assumes the obligation to accept or make delivery by entering into a futures contract. See Open Interest.

Commodity

An article of commerce or a product that can be used for commerce, including agricultural products, metals, petroleum, foreign currencies, and financial instruments and indexes.

Commodity Exchange Act

AKA: CEA Federal act passed in 1936 that established the Commodity Exchange Authority and placed futures trading in a wide range of commodities under the regulation of the government.

Commodity Futures Modernization Act of 2000

AKA: CFMA The act of Congress that authorized the trading of single stock futures and narrow-based stock index futures. This legislation also made the CFTC responsible for the oversight and regulation of the foreign exchange market.

Commodity Futures Trading Commission

AKA: CFTC The federal regulatory agency established in 1974 that administers the Commodity Exchange Act. The CFTC monitors the futures and options on futures markets in the United States. The commission is independent of all cabinet departments, and comprises five commissioners who were appointed by the President and subject to Senate confirmation.

Commodity Pool

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

Commodity Pool Operator

AKA: CPO An individual or organization that operates or solicits funds for a commodity pool. CPOs are generally required to be registered with the CFTC.

Commodity Trading Advisor

AKA: CTA A person who advises others as to the value of or advisability of buying or selling futures contracts or options or trades on the customer’s behalf. A CTA trades other people’s money, and generally must be registered with the CFTC.

Confirmation Statement

A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been initiated. The statement shows the price and the number of contracts bought or sold, and is sometimes combined with a Purchase and Sale Statement.

Consumer Price Index

AKA: 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.

Contango

A condition when the front month prices are lower than the back month prices. This is normal for most markets because back months include carrying costs (interest, storage, etc). The opposite of Backwardation.

Contract

A unit of trading in futures. Also, the actual bilateral agreement between buyer and seller in a futures transaction.

Contract Grade

The grade of commodity that has been approved by an exchange as deliverable in settlement of a futures contract. See Basis Grade, Par.

Contract Market

A board of trade designated by the CFTC to trade futures or options contracts on a particular commodity. It is commonly used to mean any exchange on which futures are traded. Also referred to as an Exchange.

Contract Month

The month in which delivery is to be made in accordance with the terms of the futures contract—also known as Delivery Month.

Convergence

The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month. Also known as a "narrowing of the basis."

Conversion Factor

Used to equate the price of Treasury bond and Treasury note futures contracts with the various cash Treasury bonds and Treasury notes eligible for delivery.

Cost and Freight

AKA: C&F This is paid to move a commodity to a port of destination.

Cost insurance and freight

AKA: CIF This is paid to move a commodity to a port of destination. It is included in the price quoted.

Cost of Carry

See Carrying Charge.

Counter Trend Strategy

A trading strategy that attempts to profit by small gains through a series of trades against the current market trend. Many counter-trend trading strategies utilize momentum indicators when determining trading opportunities.

Counterparty

One of the participants in a financial transaction, typically in FX transactions.

Coupon

The interest rate on a debt instrument, expressed in terms of a percent on an annualized basis that the issuer guarantees to pay the holder until maturity.

Cover

To purchase or sell futures to offset a previously established position.

Covered Option

A short call or put option position, which is covered by the sale or purchase of the underlying futures contract or physical commodity.

Crop Marketing Year

AKA: Crop Year The period of time from one harvest or storage cycle to the next; varies with each commodity.

Crop Reports

Reports compiled by the U.S. Department of Agriculture on various ag commodities that are released throughout the year. These include 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 market follow similar price trends (e.g., using soybean meal futures to hedge fish meal).

Cross Rate

The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted.

Crush Spread

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

Current Yield

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

Customer Margin

Funds required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations.

Customer Segregated Funds

See Segregated Account.

D

Daily Trading Limit

The maximum price range set by the exchange each day for a contract.

Day Order

An order that is placed for execution, if possible, during only one trading session. If the order cannot be executed that day, it is automatically canceled.

Day Trader

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

Day Trading

Refers to establishing and liquidating the same position or positions within the same trading session.

Dealer

An individual or firm acting as a principal or counterparty to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Debit Balance

An account with no positions and a negative adjusted total equity. A debit balance typically arises as a result of a trader losing more money in the marketplace than was available in the account.

Deck

The collection of customer orders to purchase or sell futures and option contracts held by a floor broker in the trading pit.

Default

The failure to perform on a futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take delivery.

Deferred Delivery Month

The distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month.

Deferred Futures

Futures contracts that expire during the more distant months. See Nearbys.

Delayed Quotes

Market quotations that are delayed by the various futures exchange’s required time periods, usually 10-20 minutes.

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.

Delivery

The tender and receipt of an actual commodity, warehouse receipt, or other negotiable instrument covering such commodity in settlement of a futures contract.

Delivery Commitment

For buyers, the written notice given by the buyer of his intention to take delivery against a long futures position on delivery day. For sellers, the written notice given by the seller of his intention to make delivery against the short futures position on delivery day.

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.

Delivery Points

Locations designated by futures exchanges where the physical commodity covered by a futures contract can be delivered in fulfillment of such contract.

Delivery Price

The price fixed by the clearinghouse at which deliveries on futures contracts are invoiced. Also, the price at which the futures contract is settled when deliveries are made. See Settlement Price.

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 the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement. Derivatives involve the trading of rights or obligations based on the underlying product, but do not directly transfer property—and they are used to hedge risk or to exchange a floating rate of return for a fixed rate of return.

Designated Self Regulatory Organization

AKA: DSRO When a Futures Commission Merchant (FCM) is a member of more than one SRO, the SROs may decide among themselves which of them will be primarily responsible for enforcing minimum financial and sales practice requirements. The SRO will be appointed DSRO for that particular FCM. NFA is the DSRO for all non-exchange member FCMs. See Self-Regulatory Organization.

Devaluation

A formal "official" decrease in the value of a country’s currency, typically by that country.

Differentials

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

Disclosure Document

A statement that must be provided by a Commodity Trading Advisor or Commodity Pool Operator to prospective customers describing trading strategy, fees, performance, etc.

Discount

Less than par. If a future delivery is selling at a discount to the spot delivery, then it’s selling for a lower price than the spot price. See Premium.

Discount Method

A method of paying interest by issuing a security at less than par, and repaying par value at maturity. The difference between the higher par value and the lower purchase price is the interest.

Discount Rate

The interest rate charged on loans by the Federal Reserve to member banks.

Discretionary Account

An account over which any individual or organization, other than the person in whose name the account is carried, exercises trading authority or control. Also referred to as a controlled or managed account.

Drawdown

An investment is said to be in a drawdown when its price falls below its last peak. The drawdown percentage drop in the price of an investment from its last peak price. The period between the peak level and the trough is called the length of the drawdown period between the trough and the recapturing of the peak is called the recovery.

E

Econometrics

The application of statistical and mathematical methods in the field of economics to test and quantify economic theories and the solutions to economic problems.

Electronic Clerk

AKA: EC The electronic order management device used by many floor brokers in the trading pits at the Chicago Board of Trade.

Electronic Order

An order placed electronically (without the use of a broker), either via the Internet or an electronic trading system.

Electronic Trading Hours

AKA: ETH The U.S. after-hours markets during the evenings. Futures contracts trading during ETH do so on electronic trade matching platforms such as Chicago Board of Trade’s A/C/E, Chicago Mercantile Exchange’s GLOBEX, and New York Mercantile Exchange’s ACCESS.

Emerging CTA

An emerging CTA is one whose track record is less than five years and has less than $100 million dollars in assets under management.

Eurodollars

U.S. dollar deposits held abroad. Holders can include individuals, companies, banks and central banks.

European Central Bank

AKA: ECB The Central Bank for the European Union.

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). See Reciprocal of European Terms.

European Union

The principal goal of the European Union (EU) has been to establish a single European currency called the Euro, to officially replace the national currencies of the member EU countries. The current members are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain, and Portugal.

Evening Up

Buying or selling to offset an existing market position. See Liquidation.

Ex Pit Transactions

Trades executed, for certain technical purposes, in a location other than the regular exchange trading pit.

Exchange

See Contract Market.

Exchange Rate

The value of one currency stated in terms of another currency.

Exchange for Physicals

AKA: EFP A transaction in which a physical commodity position is traded for a futures position. Also referred to as "against actuals" or "versus cash."

Exercise

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

Exercise 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 strike price.

Expiration

The last day that an option may be exercised into the underlying futures contract. Also, the last day of trading for a futures contract.

Extrinsic Value

The difference between an option’s price and the intrinisic value. Also known as 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.

Fast Market

A market that has been designated by the pit committee as experiencing unusual volume or volatility. During such conditions, floor brokers handling customer orders are excused from many of the normal standards with respect to executing orders and reporting fills.

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 Reserve System

A central banking system in the United States, created by the Federal Reserve Act in 1913. It was 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

A ratio used to express the relationship of feeding costs to the dollar value of livestock. See Steer/Corn Ratio.

Fill

AKA: FOK To execute an order. Also, an executed order.

Fill or Kill

An order which must be filled immediately and in its entirety—otherwise, the order automatically will be cancelled.

Financial Instrument

There are two basic types of financial instruments: a debt instrument (which is a loan with an agreement to pay back funds with interest) and an equity security (which is a share or stock in a company).

First Notice Day

The first day, varying by commodities and exchanges, on which notices of intentions to deliver actual commodities against futures are authorized.

Floor Broker

An individual who executes orders on the trading floor of an exchange for any other person. A floor broker executing orders must be licensed by the CFTC.

Floor Trader

A member of an exchange, who trades for his/her own account or one controlled by him/her on the floor of the exchange. Also referred to as a "local."

Foreign Exchange

The foreign exchange market, also referred to as the forex market.

Forex Futures

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

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

In the future.

Forward Cash Contract

AKA: Forward 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 method of anticipating future price movement using supply and demand information.

Fundamental Analysis

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

Funds Not Cleared

The total amount of any deposits temporarily unavailable for trading until funds have cleared.

Futures

Standardized contracts covering the sale of commodities for future delivery on a futures exchange.

Futures Commission Merchant

AKA: FCM An individual or organization that solicits or accepts orders to buy or sell futures contracts or commodity options, and accepts money or other assets from customers in connection with such orders. An FCM must be registered with the CFTC.

Futures Contract

A legally binding agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity.

Futures Exchange

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

Futures Industry Association

AKA: FIA The national trade association for Futures Commission Merchants.

G

Gamma

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

Give Up

A give up is an order that, at the request of the customer, is credited to brokerage house that has not performed the execution service. In a much simpler sense, a give up is when the broker placing the order is not credited with the order, it is credited to another broker or brokerage firm. They’re “giving up” the transaction. The most common scenario when a give up will occur is when a client wants to place a trade and their normal broker cannot place the trade for whatever reason. Since the introduction of electronic and automated trading, the give up has become less and less popular, although it is still used in certain situations.

Global Macro Strategy

Commodity Trading Advisors that utilize a global macro approach to managing assets primarily focus on the overall economic and political views of various countries, along with other macroeconomic principles to determine trading opportunities.

Globex

The Chicago Mercantile Exchange’s electronic trading platform.

Good Thru Date

A good thru date, or GTD, is an order that works until executed or cancelled, or until the end of the trading session on the date specified by the trader. A good thru date is most commonly associated with a stop order or limit order and it specifies that the order will be valid until the expiration date unless the order is amended, executed, or cancelled beforehand. A good thru date is helpful to traders who are especially active as it creates a definitive timeline for them and keeps them from prematurely executing trades.

Good Till Cancelled

AKA: GTC An order worked by a broker until it can be filled or until canceled. See Open Order.

Grading Certificate

A paper setting forth the quality of a commodity as determined by authorized inspectors or graders.

Grain Terminal

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

Grantor

A person who sells an option and assumes the obligation to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price. Also referred to as an Option Seller or Writer.

Gross Domestic Product

AKA: GDP The value of all final goods and services produced by an economy over a particular time period—normally a year.

Gross National Product

AKA: 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.

Gross Processing Margin

AKA: GPM The difference between the cost of soybeans and the combined sales income of the processed soybean oil and meal.

H

Haircut

In determining the worth of assets deposited as collateral or margin, a reduction from market value.

Hedge

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

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 might change before either buying or selling it in the cash market.

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.

High

The highest price for a particular futures contract over a specified time period.

Holder

The purchaser of either a call or put option.

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.

I

In the Money Option

An option with 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.

Initial Margin

The amount a futures market participant must deposit into a margin account at the time an order is placed to buy or sell a futures contract. Also called Initial Performance Bond. See Margin.

Interbank Rates

The foreign exchange rates at which large international banks quote other large international banks. Because of the size of such transactions and creditworthiness of the counterparties, such bid/ask spreads are typically very tight.

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.

Interest Arbitrage

The operation wherein foreign debt instruments are purchased to profit from the higher interest rate in the foreign country over the home country. The operation is profitable only when the forward rate on the foreign currency is selling at a discount less than the premium on the interest rate. See Interest Rate Parity.

Interest Rate Parity

The formal theory of interest rate parity holds that under normal conditions the forward premium or discount on a currency in terms of another is directly related to the interest differential between the two countries. This theory holds only when there are unrestricted flows of international short-term capital. In reality, numerous economic and legal obstacles restrict the movement, so that actual parity is rare. See Interest Arbitrage.

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.

Intermediate Holding Period

A time period for holding trades three months to a year in duration until liquidation.

Intermediate Term Time Horizon

An intermediate investment time horizon is a period of three to ten years.

Intrinsic Value

The amount by which an option is in-the-money. See In-the-Money Option.

Introducing Broker

AKA: IB Firm or an individual that solicits and accepts futures orders from customers but does not accept money, securities, or property from the customer. An IB must be registered with the CFTC.

Inverted Market

A futures market in which the nearer months are selling at premiums to the more distant months. Also known as backwardation.

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.

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

The most recent price at which a particular futures contract traded in the marketplace.

Last Trading Day

The final day on which trading may occur in a given futures or options contract.

Leading Indicators

Market indicators that signal the state of the economy for the coming months, including 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, and change in money supply.

Leverage

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

Limit

See Limit Order, Position Limit, Price Limit, Variable Limit.

Limit Move

A price that has advanced or declined the permissible limit during one trading session, as fixed by the rules of an exchange.

Limit Order

AKA: LMT An order given to a broker with restrictions upon its execution, such as price and time.

Limit Price

See Maximum Price Fluctuation.

Limit Up or Down

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.

Linkage

The ability to buy (sell) contracts on one exchange and later sell (buy) them on another exchange.

Liquid

A characteristic of a security or commodity market with enough units outstanding to allow large transactions without a substantial change in price.

Liquidate

To take a second futures or options position opposite to the initial or opening position. To sell (or purchase) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or make (or take) delivery of the cash commodity represented by the futures market. See Offset.

Liquidating Value

A money balance figure calculated by beginning with adjusted total equity, subtracting short option value, and adding long option value.

Liquidation

Futures Liquidation – Liquidation is any transaction that offsets or closes out a long or short futures position, it can also be known as an offset. Often times, liquidation is the act of selling off your futures position in exchange for cash. Once you have liquidated you positions for a cash exchange, that cash will then go into your account where you may decide to purchase other contracts or withdraw for personal use. Futures liquidation is different than the more commonly known business liquidation, where a company sells off all assets for a variety of reasons in order to become solvent.

Liquidity

AKA: Liquid Market A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance.

Loan Rate

The amount lent per unit of a commodity to farmers by the U.S. Government.

Local

A member of an exchange who trades for his own account or fills orders for customers.

Long

One who has bought futures contracts or owns a cash commodity. Opposite of Short.

Long Hedge

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

Long Option Value

A long option value is the current marketplace value of all long options in a trading account. Options marked to the last reported price. Market movement may cause bids and offers to be away from the last reported price. Essentially, a long option value is calculating how much cash would flow into the client’s account if the option were hypothetically offset at the current market value. This is another tool traders use to figure out where they stand in the marketplace and how their transactions are currently fairing. However, the long option value is a fluid number, it changes as the market changes, so once again, it is not the “end all be all” number.

Long Term Holding Period

A time period for holding trades a year or more in duration until liquidation.

Long Term Time Horizon

A long term investment time horizon is a period longer than 10 years.

Long the Basis

The purchase of a cash commodity and the sale of futures against unsold inventory to provide protection against a price decline in the cash market.

Lot

A unit of trading. In the futures market, one lot refers to one futures or options contract.

Low

The lowest price of a specified time period for a particular futures contract.

M

Maintenance Margin

A sum usually smaller than, but part of, the original margin (security deposit) that must be maintained on deposit at all times. If your account falls below the maintenance margin requirement, you will receive a margin call. If you wish to continue to hold the position, you will be required to restore your account to the full initial margin level (not to the maintenance margin level). See Margin.

Managed Account

See Discretionary Account.

Managed Futures

Represents an asset class composed of commodity trading advisors who manage client assets on a discretionary basis, using global futures markets as an investment medium.

Margin

A cash amount of funds that a customer must deposit with the broker for each contract as a sign of his good faith in fulfilling the contract terms.

Margin Call

A call from a broker or firm to a customer, to bring margin deposits up to a required minimum level. Exchange rules state that margin calls must be satisfied by bringing your account equity back to the Initial Margin level. Failure to meet a margin call immediately may result in some or all of the trader’s positions being liquidated by the firm without prior notification.

Mark to Market

The daily adjustment of margin accounts to reflect profits and losses based on that day’s price changes in each market.

Market Maker

A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.

Market Order

AKA: MKT An order to buy or sell a specified commodity, including quantity and delivery month at the best possible price available, 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.

Market if Touched

AKA: MIT A price order that automatically becomes a market order if the price is reached.

Market on Close

AKA: MOC An order to buy or sell at the end of the trading session at a price within the closing range of prices.

Maturity

U.S. Treasury Bills reach their face value on the maturity date. T-Bills are issued at a discount to face value and gradually increase in value until reaching the full face value on the maturity date.

Maximum Price Fluctuation

The maximum amount the contract price can change up or down during one trading session, as fixed by exchange rules.

Minimum Price Fluctuation

Minimum price fluctuation are the smallest increment of price movement possible in trading a given contract, this can also be referred to as a tick. When a security is traded on an exchange, the movement is measured in ticks. There are three different types of tick, plus, minus, and zero. A plus tick is when the price of the security is higher than the price it was bought at, a minus tick is when the price of a security is lower than what it was bought at, and a zero tick is when the price is the same. Ticks fluctuate throughout the entire trading day, and often don’t stay at the exact same number for long, so it’s important to stay updated and keep watching price movements of your purchased contracts.

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

See Uncovered Option.

Narrow Based Stock Index

Broad-based stock indices, such as the S&P 500, are defined as a basket of securities where the weight of any single constituent cannot be greater than 30% and the weight of the five largest components cannot exceed 60% of the index. All other indices are said to be narrow-based and are regulated identically to single stock futures.

National Futures Association

AKA: NFA Authorized by Congress in 1974 and designated by the CFTC in 1982 as a "registered futures association," NFA is the industrywide self-regulatory organization of the futures industry. 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

The nearest active trading month of a futures or options on futures contract. Also referred to as "lead month."

Net Asset Value

The value of each unit of participation in a commodity pool. Basically, it is a calculation of assets minus liabilities plus or minus the value of open positions when marked to the market, divided by the total number of outstanding units.

Net Liquidating Value

Also known as Net Liquidation Value, is the current value of all holdings in your portfolio. Your net liquidation value reflects how much the contents of your portfolio would be worth if you were to liquidate everything at the current market price. Net liquidating value can be calculated by adding your total cash, plus your market value in longs, minus your market value in shorts. The sum of that equation will provide you with your net liquidating value.

Net Options Value

Net options value is the credit or debit value of all options positions combined, marketed-to-the-marketer. For example, when a trader purchases an options contract, they are given a net options value credit, which reflects the value of their options contract. The trader can then use that credit towards other debits like initial margin requirements or towards the debit of other options contracts. The NOV really helps give traders more flexibility and gives traders more options when purchasing options positions.

Nominal Price

Price quotation on futures for a period in which no actual trading took place.

Not Held

An order submitted to a brokerage firm with the understanding that it will use its best efforts to execute the order according to the customer’s instructions, but the broker may not be held responsible or liable for any lost profits, trading losses, or damages resulting from the manner in which the order is handled.

Notice Day

A day on which notices of intent to deliver pertaining to a specified delivery month may be issued.

O

OPEC

AKA: Organization of Petroleum Exporting Countries This organization emerged as the major petroleum pricing power in 1973, when the ownership of oil production in the Middle East transferred from the operating companies to the governments of the producing countries or to their national oil. Members are: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

Offer

An indication of willingness to sell a futures contract at a given price. Also called "ask," it is the opposite of bid.

Offset

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

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 being designated separately.

One Cancels Other

AKA: OCO An order that stipulates that if one part of the order is executed, then the other part is automatically canceled.

Open

The period at the beginning of the trading session officially designated by the exchange, during which all transactions are considered made "at the open.â€

Open Interest

The total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery.

Open Market Operation

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

Open Order

An order to a broker that is good until it is canceled or executed.

Open Outcry

A method of public auction for making bids and offers in the trading pits of futures exchanges.

Open Trade Equity

Open Trade Equity is the total gain or loss on all open futures positions. What OTE does is measure the difference between the fill price of all open contracts against the last traded price of all open contracts. OTE is especially valuable to those who consider themselves margin investors because the fluctuations in price directly affect the total value of their account. This is a good tool to use to measure how successful your trades are and what moves you may need to make in the futures.

Opening Price

The price (or range) recorded during the period designated by the exchange at the official opening.

Opening Range

The range of prices at which the first bids and offers were made or first transactions were completed.

Option

A contract giving the holder the right or the “option†(not the obligation) to buy (call option) or sell (put option) a futures contract in a given commodity at a specified price at any time between now and the expiration of the option contract.

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 Contract

A contract which gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or a futures contract at a specific price within a specified period of time. The seller of the option has the obligation to sell the commodity or futures contract, or buy it from the option buyer at the exercise price if the option is exercised. See Call Option and Put Option.

Option Premium

The price a buyer pays (and a seller receives) for an option. Premiums are arrived at through open outcry. There are two components in determining this price: extrinsic (or time) value and intrinsic value.

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.

Or Better

AKA: OB A variation of a limit order in which the market is at or better than the limit specified.

Or Better Close Only

AKA: OBCO A variation of a limit order in which the market has a closing range at or better than the specified limit. The order can be executed only at the closing range of the trading session.

Or Better Open Only

AKA: OBOO A variation of a limit order in which the market has an opening range at or better than the specified limit. The order can be executed only at the opening range of the trading session.

Original Margin

The amount a futures market participant must deposit into a margin account when placing an order to buy or sell a futures contract. Also referred to as initial margin.

Out Trade

A trade which cannot be cleared by a clearinghouse because the data submitted by the two clearing members involved in the trade differs in some respect.

Out of the Money Option

A call option with a strike price higher or a put option with a strike price lower than the current market value of the underlying asset, (i.e., an option that does not have any intrinsic value). Its value is time and volatility related.

Over the Counter

AKA: OTC A market where products such as foreign currencies are bought and sold by telephone and other electronic means of communication, rather than on a designated futures exchange.

Overbought

A technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors.

Oversold

A technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors.

P

Par

The face value of a security.

Parity

An option is said to be trading at parity if the premium at which it is currently trading in the market is exactly equal to its intrinsic value. In other words, time value is zero.

Partial Fill

When a trader has placed an order to buy or sell more than 1-lot, it is always possible that the order may be only partially filled.

Performance Bond

Funds that must be deposited by a customer with a broker, by a broker with a clearing member or by a clearing member with the clearinghouse to initiate or maintain a market position. The performance bond helps to ensure the financial integrity of brokers, clearing members and the exchange. Also known as Margin.

Performance Bond Call

AKA: Margin Call A demand for additional funds because of adverse price movement.

Pips

Slang forex reference to digits added to or subtracted from the fourth decimal place in a quoted currency rate, such as 0.0001. See Points.

Pit

The area on an exchange trading floor where futures and options on futures contracts are bought and sold.

Point and Figure Charts

Charts that show price changes of a minimum amount regardless of the time period involved.

Points

Predominately a forex term used to describe digits added to or subtracted from the fourth decimal place in a quoted currency rate, such as 0.0001.

Pool

See Commodity Pool.

Position

A commitment, either long or short, in the market. 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

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 clearinghouse 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 CFTC and/or the exchange where the contract is traded.

Position Trader

A trader who either buys or sells contracts and holds them for an extended period of time.

Premium

Refers to (1) the amount a price would be increased to purchase a better quality commodity; (2) a futures delivery month selling at a higher price than another; (3) cash prices that are above the futures price; (4) the price paid by the buyer of an option; or (5) the price received by the seller of an option.

Price Change

A revision to a previously reported fill, usually due to the resolution of an out trade.

Price Discovery

The process of determining the price of a commodity by trading conducted in open outcry at an exchange.

Price Limit

The maximum advance or decline, from the previous day’s settlement price, permitted for a futures contract in one trading session. See Variable Limit, Maximum Price Fluctuation.

Price Limit Order

An order that specifies the highest price at which a bidder will pay for a contract, or the lowest price a seller will sell a contract.

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

Market of new issues of securities.

Prime Rate

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

Producer Price Index

AKA: PPI An index that shows the cost of resources needed to produce manufactured goods during the previous month.

Pulpit

A raised structure adjacent to, or in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange, record price changes as they occur in the trading pit.

Purchase and Sale Statement

AKA: P&S A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been liquidated or offset. The statement shows 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 transaction. It is sometimes combined with a Confirmation Statement.

Purchasing Hedge

AKA: 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.

Purchasing Power

Total Trade Equity minus Initial Margin. Your purchasing power represents funds available to you to establish new positions. Your purchasing power changes throughout the day as your total trade equity and margins change. If you have options positions, margin amounts are based on a calculation of total portfolio risk.

Put

An option giving the right to sell a commodity or security at a predetermined price within a specified period of time.

Pyramiding

Using profits on a previously established position as margin for adding to that position.

Q

Quotation

The actual price or the bid or ask price of either cash commodities or futures or options contracts at a particular time.

R

Rally

An upward movement of prices following a decline; the opposite of a reaction.

Range

The difference between the high and low price of a commodity during a given trading session, week, month, year, etc.

Rate

A forex term used to describe the price of one currency in terms of another, typically used for dealing purposes.

Reaction

A decline in prices following an advance. The opposite of rally.

Real Time Quotes

Market quotations that are not delayed.

Reciprocal of European Terms

One method of quoting exchange rates, which measures the U.S. dollar value of one foreign currency unit (i.e., U.S. dollars per foreign units). See European Terms.

Recovery

Usually describes a price advance following a decline.

Registered Representative

A person employed by, and soliciting business for, a commission house or Futures Commission Merchant.

Regular Trading Hours

The standard, morning/afternoon trading sessions at the U.S. markets.

Replace Order

To modify an existing pending or working order.

Reportable Positions

The number of open contracts specified by the CFTC when a firm or individual must begin reporting total positions by delivery month to the authorized exchange and/or the CFTC.

Repurchase Agreements

AKA: Repo An agreement between a seller and a buyer, usually in U.S. government securities, in which the seller agrees to buy back the security at a later date.

Resistance

In technical trading, a price area where new selling will emerge to dampen a continued market rise. See Support.

Retender

In specific circumstances, some contract markets permit holders of futures contracts who have received a delivery notice through the clearinghouse to sell a futures contract and return the notice to the clearinghouse to be reissued to another long; others permit transfer of notices to another buyer. In either case, the trader is said to have retendered the delivery notice.

Retracement

A reversal within a major price trend.

Reversal

A change of direction in market price.

Reverse Crush Spread

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

Rollover

Process whereby the settlement of a forex deal is rolled forward to another date. The cost of this process is based on the interest rate differential of the two currencies.

Round Turn

Procedure by which a long or short position is offset by an opposite transaction or by accepting or making delivery of the actual financial instrument or physical commodity.

Round Turn per Million

Round turn per million represents the number of trades (in and out) that a CTA program trades on an annual basis, based on a $1 million account. Round turn per million is a statistic often used by managed futures advisors. A round turn accounts for one single completed trade, which includes a buy and sell. Once you have your round turn per million number (number of round turns completed per million dollars) you can multiply that by two to achieve the total number of contracts trader per million dollars. Remember, a round turn is both a buy and sell counted as one, so to get the total number of contracts traded you have to count a buy or sell as its own entity.

Runners

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

S

Scalp

To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, often within just a few minutes.

Scalper

A local trader in the pit who trades for small, short-term profits during the course of a trading session—rarely carrying a position overnight.

Secondary Market

Market where previously issued securities are bought and sold.

Securities on Deposit

Treasury bills and other government interest-bearing coupons that you may have in your trading account.

Security Deposit

The amount of funds that must be deposited by a customer with his broker for each futures contract as a guarantee of fulfillment of the contract. It is not considered part payment of purchase. Used interchangeably with margin.

Security Deposit Call

A demand for additional cash funds because of adverse price movement. See Maintenance Margin.

Security Futures

See Single Stock Futures.

Segregated Account

A special account used to hold and separate customers’ assets from those of the broker or firm.

Self Regulatory Organization

AKA: SRO Self-regulatory organizations (i.e., the futures exchanges and National Futures Association) enforce minimum financial and sales practice requirements for their members. See Designated Self-Regulatory Organization.

Sell Order

AKA: Sell An offer. This transaction type indicates to sell or to go short. Opposite of buy or go long.

Sell Spread

AKA: Option Sell Spread The transaction type you choose to indicate an option sell spread.

Selling Hedge

AKA: 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. See Hedging.

Settlement Price

The settlement price is the “average” price based on the last couple of minutes of a “pit” session. Electronic markets do not have a settlement price per se. The settlement price of an electronic market is based on the “pit” close. For example: EMINI SP closes at 4:00 pm Chicago time. The Pit session concludes at 3:15 pm Chicago time. The exchange will calculate the closing price based on the last couple of minutes of trading before the pit close. The customer’s margin responsibility and cash value in the account will be based on that 3:15 settlement not the last price traded electronically at 4:00 pm. The open of the next session will start with the settlement price.

Short Option Value

A short option value is the current marketplace value of all short options in a trading account. Options marked to the last reported price. Market movement may cause bids and offers to be away from the last reported price. Essentially, a short option value is calculating how much cash would flow into the client’s account if the option were hypothetically offset at the current market value. This is another tool traders use to figure out where they stand in the marketplace and how their transactions are currently fairing. However, the long option value is a fluid number, it changes as the market changes, so once again, it is not the “end all be all” number.

Short Selling

Selling a contract with the idea of buying it back at a later date.

Short Squeeze

A situation in which a lack of supplies tends to force those who have sold to cover their positions by offsetting them in the futures market rather than by delivery.

Short Term Holding Period

A time period for holding trades seconds to a three month duration until liquidation.

Short Term Time Horizon

A short term investment time horizon is a period of less than 3 years.

Simulated Trading

The process of buying and selling without actually entering the market or risking any real funds.

Single Stock Futures

Futures contracts on individual securities.See Security Futures.

Special Offset

When a long position and a short position are specially matched and offset according to specific instructions from a customer, rather than according to standard industry offset practices.

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.

Split Fill

A split fill is an order consisting of more than one lot, where contracts are filled at different prices, this is also known as order splitting. This is most commonly done with larger orders so that the order in question can be filled automatically. A split fill is most likely to happen market depth and trading volume is lower than usual. A split fill allows smaller time traders (ordering less than 1,000 shares) to have the same type of access to orders and contracts and large-scale traders.

Spot

Market of immediate delivery of the product and immediate payment. Also refers to the nearest delivery month on a futures contract.

Spot Month

See Nearby Delivery Month.

Spot Price

In futures markets, this term usually refers to a cash market price for a physical commodity that is available for immediate delivery. Where forex is concerned, the term generally refers to the current market price. Settlement of spot FX transactions usually occurs within two business days.

Spread

The price difference between two related markets or commodities. Also sometimes called a Straddle.

Spreading

The simultaneous buying and selling of two related markets or commodities in the expectation that a profit will be made when the position is offset.

Steer Corn Ratio

The relationship of cattle prices to feeding costs. It is measured by dividing the price of cattle ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to cattle prices, fewer units of corn equal the dollar value of 100 pounds of cattle. Conversely, when corn prices are low in relation to cattle prices, more units of corn are required to equal the value of 100 pounds of beef. See Feed Ratio.

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

An order that becomes a market order when the futures contract reaches a particular price level. A sell stop is placed below the market, a buy stop is placed above the market.

Stop Close Only

AKA: SCO A time sensitive variation of a stop order. Order is only worked as a stop during the closing range.

Stop Limit

AKA: STL An order that immediately becomes a market order when the "stop" level is reached. Its purpose is to limit losses. It may be either by buying order or selling order.

Stop Open Only

AKA: SOO A time sensitive variation of a stop order. Order is only worked as a stop during the opening range.

Stop with Limit

AKA: STWL A variation of a stop order. A stop with limit order to buy becomes a limit order when the futures contract trades (or is bid) at or above the stop price. A stop with limit order to sell becomes a limit order when the futures contract trades (or is offered) at or below the stop price.

Straddle

A position consisting of a long (short) call and a long (short) put, where both options have the same underlying expiration date and strike price.

Strangle

A position consisting of a long (short) call and a long (short) put, where both options have the same underlying and expiration date, but different strike prices. Typically, both options are out-of-the-money.

Streaming Quotes

Market quotations that continuously and automatically update on the trader’s screen.

Strike Price

The price at which the holder (buyer) may purchase or sell the underlying futures contract upon the exercise of an option.

Support

In technical analysis, a price area where new buying is likely to come in and stem any decline. See Resistance.

Swap

An interest rate swap is an agreement between two parties to exchange interest rate payments on a fixed (notional) amount of debt. In its standard (generic) form, one party to the swap agrees to pay a fixed interest rate in exchange for receiving a variable (floating) rate on the swap’s notional amount. The reverse position is taken by the counterparty.

Switching

Liquidating an existing position and simultaneously reinstating that position in another contract month of the same commodity or currency.

Systematic

Commodity Trading Advisors that trade using a systematic approach define trade goals, risk controls, and rules to find and execute trades in a methodical fashion. Many systematic CTAs employ computer models based primarily on technical analysis of market data or fundamental economic data, with minimal manager intervention.

T

Technical Analysis

An approach to analysis of futures markets that examines patterns of price change, rates of change, and changes in volume of trading, open interest and other statistical indicators. See Charting.

Technical Rally

A price movement attributed to conditions developing from within the futures market itself. These conditions include changes in open interest, volume and extent of recent price movement.

Tick

The smallest allowable increment of price movement for a futures 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 Stamped

Part of the order-routing process in which the time of day is stamped on an order.

Time Value

The amount of money option buyers are willing to pay, above the intrinsic value, 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 and volatility value. Also referred to as extrinsic value.

Time and Sales

The registered times of prices traded and bid and offers on a given market.

To Arrive Contract

Hedge To Arrive Contract – To arrive contract is a transaction providing for subsequent delivery within a stipulated time limit of a specific grade of a commodity. A hedge to arrive contract is often associated with commodities in the grain market of futures trading. Essentially a to arrive contract is an agreement to lock in the only the futures price portion of the contract. This is an agreement for a specific amount of a commodity to be delivered in the future for cash. The basis may be set at a later date, but it must take place before delivery of the contract.

Too Late to Cancel

When a trader attempts to modify or replace an order that has already been executed but not yet reported as having been filled, the order is said to be too late to cancel.

Total Equity

Total equity is a money balance figure calculated by adding futures open trade equity, also known as OTE (the gain or loss on open futures positions), to your total cash balance. This can be useful for traders to know how much money they are working with and help them develop and execute their trading strategy going forward. Obviously, a trader with a higher total equity will be able to take more risks, while a trader with a lower total equity may want to be more conservative. However, total equity is not a definitive number as the amount a futures contract is worth can fluctuate throughout the life of the contract.

Total Return

The total percentage return of an investment over a specified period, calculated by expressing the difference between the investment’s initial price and final price as a percentage of the initial price.

Trade Balance

The difference between the value of a nation’s imports and exports of merchandise.

Trade Order Processing System

AKA: TOPS TOPS is an electronic order entry, routing, and fill reporting system that expedites the flow of orders from a firm’s desk or directly from its customers to its exchange floor operations. It is jointly owned by the CME and the CBOT - member firms are currently using TOPS Route at both exchanges. The system enables its users to improve the speed and accuracy of order processing. Because the system electronically routes orders and fills, TOPS greatly reduces the telephone calls between customers, order desks, and the trading floor. In addition to routing, the system generates fill reports and transmits trade records to member firms’ back office systems. TOPS order status inquiry and open order management features offer an efficient means for firms to manage their open orders.

Trailing Stop Order

This special order type allows the trader to profit from favorable movement in the market while having the protection of a Stop order. But it frees the trader from having to constantly monitor the market and repetitively cancel/replace a regular Stop.

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."

Two Way Price

When both a bid and offer forex rate is quoted by the dealer.

U

US Treasury Bill

A short-term US 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.

US Treasury Bond

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

US Treasury Note

Government-debt security with a coupon and original maturity of one to 10 years.

Unable

A working order that has not yet been able to be executed.

Uncovered Option

A short call or put option position that is not covered by the purchase or sale of the underlying futures contract or physical commodity. Also referred to as a Naked Option.

Underlying Futures Contract

The specific futures contract that the option conveys the right to buy (in the case of a call) or sell (in the case of a put).

V

Variable Limit

A price system that allows for larger than normal allowable price movements under certain conditions. In periods of extreme volatility, some exchanges permit trading at price levels that exceed regular daily price limits.

Variation Margin

Additional margin required to be deposited by a clearing member firm to the clearinghouse during periods of great market volatility, or in the case of high-risk accounts.

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.

Volume

The number of transactions in a futures or options on futures contract made during a specified period of time.

W

Warehouse Receipt

A document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.

Web OE

Web Order Entry is a firewall-friendly order entry module, provided by RJO Futures, which connects users with access to the global futures marketplace. Using a series of dynamic Web pages, this powerful application enables its users to place, change, and monitor order flow between a remote location and the financial markets. And if you already have a quote and charting package, you can use Web OE in addition, for a complete order-routing and execution experience.

Whipsaw

Slang for a condition in a highly volatile market where a sharp price movement in one direction is quickly followed by a sharp reversal and movement in the opposite direction.

Williams %R

Larry Williams’ Percentage Range indicator measures the current momentum of price over a user defined period.  Also known as the “%R”, this momentum indicator oscillates between 0 and -100 as it compares the current closing price with respect to the highest high and lowest low over the range.

A value closer to zero signifies bullish momentum as price is in the top of the range over the look back period. When the indicator is closer to -100 it means price as the bottom of the range meaning bearish momentum is strong.

There are many ways to use the %R, with the most well-known uses being: 1) to identify overbought and oversold markets for those traders seeking to pick tops and bottoms in price, 2) identify strong momentum markets, 3) giving trade signals when the indicator passes over the mid-line (-50) having been in either in the overbought or oversold territory and, one lesser known use, 4) identifying market divergence.

Writer

An individual who sells an option. See Grantor.

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 creditworthiness is plotted on the horizontal axis. The yield curve is positive when long-term rates are higher than short-term rates.

Yield to Maturity

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