| Alpha | A measure of a mutual fund's risk relative to the market. |
| Arbitrage | Simultaneous purchase of cash commodities or futures in one market against the sale of cash commodities or futures in a different market, to profit from a discrepancy in prices. In some definitions, arbitrage refers only to riskless transactions in which the entire investment is made with borrowed funds. |
| Ask | The price a seller is willing to accept for a security, also known as the offer price. Along with the price, the ask quote will generally also stipulate the amount of the security willing to be sold at that price. |
| Associated Person (AP) | Category of persons, associated with firms or other entities, who must be registered under the Commodity Exchange Act. |
| At-the-money | An option whose strike price equals the current price of the underlying commodity, security, currency, index or futures contract. |
| Average daily volume | The number of shares or bonds traded daily, on average, during a period of time, generally one year. Average daily volume serves as a basis to determine if trading in a security is unusually heavy. |
| Basis | The difference between the spot or cash price of a commodity, security, currency or index and the futures price of the same or related underlying item. Basis is usually computed to the nearby future and may represent different time periods, product forms, grades and locations depending upon the cash and futures prices used. |
| Basis point | 1/100 of one percent. Used in quoting yield movements in certain interest rate instruments and futures contracts based on them. |
| Bear | one who expects a decline in prices. The opposite of a bull. |
| Bear Market | a market characterized by falling prices for securities |
| Bear Spread | Short the nearby future and long the deferred, in anticipation of a decline in the general level of prices, with the nearby future expected to decline more than the deferred contract. |
| Beta | A statistical measure of the relationship between the price volatility of an individual stock or stock portfolio and the price volatility of the overall market. Beta is often used in computing hedge ratios for stock index futures positions. |
| Bid | An offer to buy at a stated price. |
| Block Trade | the purchase and sale of blocks of securities through brokers, sometimes not members of an exchange, who negotiate between buyers and sellers. |
| Broker | A person who is paid a fee or commission for executing orders. In futures trading, the term may refer to: (1) a floor broker, i.e., an exchange member who executes orders on the trading floor of an exchange; (2) an account executive or associated person who deals with customers for a futures commission merchant or introducing broker; and (3) a futures commission merchant. |
| Bull | One who expects a rise in prices. The opposite of a bear. |
| Bull Market | a market characterized by rising prices for securities |
| Bull spread | Long the nearby future and short the deferred in anticipation of an increase in the general level of prices, with the nearby future expected to increase more than the deferred contract. |
| Call | to demand payment of |
| Call Option | An option that gives the buyer (holder) the right, but not the obligation, to purchase a specific asset or obtain a long futures position at a fixed price within a specified period of time. |
| Cash commodity | The physical or actual commodity as distinguished from the futures contract. Sometimes called the spot commodity or actuals. |
| Cash price | The price for actual or spot commodities available via customary marketing channels. |
| Cash settlement | A settlement method used in certain future and option contracts whereby, upon expiry or exercise, the seller of the financial instrument does not deliver the actual but transfers the associated cash position. |
| CFTC | The federal regulatory agency established in 1975 to administer the Commodity Exchange Act. |
| Clearing | The procedure through which the clearinghouse becomes the buyer to each seller of a futures contract and the seller to each buyer and assumes responsibility for the financial integrity of each open contract. |
| Clearing member | A member of a clearinghouse through whom all trades must be settled. |
| Clearinghouse | An adjunct to a futures exchange through which transactions executed on the floor of the exchange are matched, settled and guaranteed. Charged with assuring the adequate financial protection of trading through collection and payment of margin and the proper conduct of the exchange's delivery procedures. |
| Commitment | Something pledged, especially an engagement by contract involving financial obligation. |
| Commodity | an article of trade or commerce, esp. a product as distinguished from a service. |
| Commodity Trading Advisor (CTA) | An individual or firm who, for pay, trades accounts for individual clients or for commodity pools and/or who provides analysis, reports or advice concerning futures and options trading. |
| Contango | Market situation in which prices are progressively higher in the succeeding delivery months than in the nearest delivery month. Also termed carrying charge; opposite of backwardation. |
| Contract | An agreement between two or more parties, especially one that is written and enforceable by law. |
| Contract Size | The deliverable quantity of goods or commodities underlying futures, forward, and option contracts. |
| Cover | (1) To offset an existing futures position; (2) to have in hand the physical commodity or other asset underlying a futures contract when a short futures position is taken; or (3) to acquire the commodity to be delivered on a short futures position. |
| Credit Spread | (1) The spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating. (2) An options strategy where a high premium option is sold and a low premium option is bought on the same underlying security. |
| Cross-hedge | Hedging a cash market risk in a futures or options contract for a different but price-related commodity, security, currency or index. |
| Cross-margining | An offsetting position where market participants are able to transfer excess margin from one account to another account whose margin is under the required maintenance margin. |
| Currency risk | A form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. |
| Dealer | a person who buys securities for his or her account and retains them until sold to another. |
| Default | failure to meet financial obligations |
| Delivery | Failure to perform on a futures or short options contract as required by exchange rules. |
| Delivery Month | The specified month within which a futures contract matures and can be settled by delivery. |
| Delta | The amount of change of an option's price or theoretical value for a unit change in the price of the underlying security, commodity, currency, index or futures contract. |
| Depreciation | a decrease in price or value |
| Derivative | a financial instrument whose value is based on another security |
| Discount | (1) The amount a price would be reduced to purchase a commodity of lesser grade; (2) price differences between futures of different delivery months; (3) cash prices below the futures price. |
| EFP | An exchange of futures for physicals, which is a transaction in which one party buys the physical commodity and simultaneously sells futures and the other party does the opposite-sells the physical commodity and simultaneously obtains a long futures position. |
| Equity | The residual dollar value of a futures or options account if it were liquidated at current prices. |
| Exchange Traded Funds (ETF) | |
| Exercise | To take advantage of the right conferred on an option's buyer to buy or sell the item underlying the option at the option's strike (exercise) price. |
| Exercise price | The price at which the buyer of a call can purchase the underlying commodity, security, index, currency or futures contract during the life of the option or the price at which the buyer of a put can sell the underlying commodity, security, index, currency or futures contract during the life of the option. Also termed strike price. |
| Expiration | a coming to an end of a contract period |
| Expire | to come to an end; terminate, as a contract, guarantee, or offer |
| Fast Market | A financial market that has a combination of high volatility and heavy trading. |
| Foreign Exchange (FX) | the process of balancing accounts in commercial transactions between business organizations of different nations. |
| Forward contract | A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. Although the delivery is made in the future, the price is determined on the initial trade date. |
| Forward market | Non-exchange trading of commodities or other assets to be delivered at a future date. Contracts for forward delivery are tailored, i.e., delivery time, location and amount are determined between each seller and buyer and generally involve marketing, merchandising and delivery. |
| Future | speculative purchases or sales of commodities for future receipt or delivery. |
| Futures Commission Merchant (FCM) | Individuals, associations, partnerships, corporations and trusts that solicit or accept orders for the purchase or sale of futures and options on futures and that accept payment from or extend credit to those whose orders are accepted. FCMs must be registered with the National Futures Association. |
| Futures price | the delivery price currently applicable to a futures contract |
| Gamma | the rate of change of deltat with repect to the asset price |
| Give-up | (1) A trade that is directed to a floor broker by an exchange member FCM (executing firm) and, after the trade is executed, it is given to another firm to clear (clearing firm); (2) a trade in which a customer contacts a floor broker directly, and after execution of the customer's order the floor broker gives up the name of the clearing member who will clear the trade. |
| Hedge | a trade designed to reduce risk |
| Hedger | an individual who enters into hedging trades |
| Hedging | Taking a position in a futures market opposite to a position held in the cash market to minimize the risk of an adverse price change; a purchase or sale of a futures contract as a temporary substitute for a cash transaction that will occur later. |
| Incentive fee | A fee charged by a commodity trading advisor that is typically calculated each quarter as a percentage of net new trading profits in the client's account. |
| Index | A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is essentially an imaginary portfolio of securities representing a particular market or a portion of it. |
| Inflation | a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency |
| Initial margin | Customers' funds put up as security to guarantee contract fulfillment at the time a futures or options position is established. |
| In-the-money | A call option with a strike price lower, or a put option with a strike price higher, than the current market price of the underlying asset or futures contract. |
| Intrinsic value | For a call option, the excess of the current market price of the asset or futures contract underlying the option over the strike price of the option; for a put option, the excess of the strike price over the current market price of the asset or futures contract underlying the option. |
| Introducing broker | Any person, other than someone registered as an associated person of a futures commission merchant, who solicits or accepts futures and related options orders but does not accept money from customers. |
| ISV | |
| Kappa | Used in regression analysis, Kappa represents the ratio of the dollar price change in the price of an option to a 1% change in the expected price volatility. |
| LIBOR | London interbank offer rate. The rate offered by banks on Eurocurrency deposits (i.e., the rate at which a bank is willing to lend to other banks |
| Limit order | an order that can be executed only at a specified price or one more favorable to the investor |
| Liquidate | To convert assets into cash or equivalents by selling them on the open market |
| Liquidation | (1) Offsetting or closing out a futures position; (2) a market in which open interest is declining. |
| Liquidity | The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity |
| Long | (1) One who has bought a futures or options contract to establish a market position; (2) a market position that obligates the holder to take delivery; (3) one who owns an inventory of commodities or securities. |
| Long Position | A position involving the purchase of an asset. |
| Lot | The number of bonds or shares of stock in a single trade |
| Management Fee | A fee levied by a commodity trading advisor. It is normally quoted as an annual percentage of the assets under management and is charged whether or not the client makes money. |
| Margin (futures) | The amount of money or collateral deposited by a client with a broker, or by a clearing member with the clearinghouse, as required by the exchange and/or clearinghouse for open futures positions. Initial margin is the total amount of margin per contract required by the broker when a futures position is opened by a customer; maintenance margin is the minimum amount of money per contract that must be maintained on deposit at all times the position is open. |
| Margin Call | (1) A request from a brokerage firm to a customer to bring margin deposits back to initial levels, normally because of losses resulting from an adverse price move; (2) a request by a clearinghouse to a clearing member to make payments to or increase deposits at the clearinghouse. |
| Market Maker | A financial institution or individual that consistently makes buy and sell quotations for a financial instrument, thereby making a market in the instrument and profiting from the bid-ask spread. |
| Mark-to-market | To debit or credit, on a daily basis, a futures margin account based on the settlement (end-of-day) price of a particular futures contract. |
| Maturity | (1) The length of time until the principal amount of a bond must be repaid. (2) The end of the life of a security. |
| Minimum price fluctuation | Smallest price change possible in a futures or options contract. Also called the tick value. |
| Nearby futures | The futures contract(s) closest to expiration. |
| Net position | The difference between total open |
| long and open short positions in a given security held by an individual. | |
| Notional value | The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets because in them a very little amount of invested money can control a large position (have a large consequence for the trader). |
| Offer | An indication of willingness to sell at a given price; opposite of bid. |
| Offset | (1) Liquidating a purchase of futures or options through the sale of an equal number of contracts of the same delivery month, or liquidating a sale of futures or options through the purchase of an equal number of contracts of the same delivery month; (2) matching total long with total short contracts for the purpose of determining a net long or net short position; (3) non-competitively matching one customer's order with another, a practice that is permissible only when executed in accordance with the Commodity Exchange Act, CFTC regulations and rules of the futures exchange. |
| Open interest | All futures or options contracts that have been entered into and not yet liquidated by an offsetting transaction or by delivery. |
| Open Position | An option or futures contract that has been bought or sold and that has not yet been offset or settled through delivery |
| Option | A contract that gives the buyer the right but not the obligation to buy or sell a futures contract or a specified quantity of a commodity, security, currency or index at a specific price within a specified period of time, regardless of the current market price of the underlying item. |
| Original Margin | The deposit the clearinghouse requires of clearing members when futures contracts are presented for clearance; parallel to the initial margin required of customers by exchanges and collected by FCMs when futures positions are originated. |
| Out-of-the-money | A call option with a strike price higher or a put option with a strike price lower than the current market price of the underlying commodity, security, currency, index or futures contract. |
| Out-trade | A trade that cannot be cleared by the associated exchange clearing house because of discrepancies between the data submitted by both parties on the opposite sides of a transaction. |
| Over-the-Counter (OTC) | Not listed or available on an officially recognized stock exchange but traded in direct negotiation between buyers and sellers |
| P&S (purchase and sale) statement | A statement sent by a brokerage firm to a customer when a futures or options position is offset or extinguished by delivery. A P&S statement typically shows the number of contracts involved, the prices at which and dates on which the contracts were bought and sold, the gross profit or loss, the commission charges, the net profit or loss on the transactions and the account balance. |
| Position | The amount of a security either owned (which constitutes a long position) or borrowed (which constitutes a short position) by an individual or by a dealer. |
| Position limit | The maximum position, either net long or net short, in a futures market, an options market or in a futures and its related options market combined, that may be held or controlled by one person as prescribed by an exchange or the CFTC. Such limits can be set for individual expiration months and for all listed expiration months combined. Because hedgers often are exempt from these limits, they often are termed speculative limits. |
| Premium | (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; (4) the money an option buyer pays to an option writer for granting an option. |
| Put | An option to sell a specified amount of a commodity, security, currency, index or futures contract at an agreed-upon price within a specified period of time. |
| Put Option | an option to sell an asset for a certain price by a certain date |
| Quantity | The measurable, countable, or comparable property or aspect of a thing |
| Quotation | the statement of the current or market price of a commodity or security |
| Quote | to state the current price of |
| Rally | a sharp rise in price or active trading after a declining market |
| Range | A stock's low price and high price for a particular trading period, such as the close of a day's trading, the opening of a day's trading, a day, a month, or a year. |
| Regression | a trend or shift toward a lower, less severe, or less perfect state |
| Risk | The chance that an investment's actual return will be different than expected. |
| Rollover | (1) A trading procedure involving the shift of one delivery month of a spread into another month while holding the other delivery month. The shift can take place in either the long or short month. (2) Lifting a futures position that is not part of a spread and simultaneously re-establishing it in a deferred delivery month. |
| Round Turn | A completed transaction involving both a purchase and a sale. |
| SEC | Securities and Exchange Commission |
| Seller | someone who promotes or exchanges goods or services for money |
| Settlement Price | The price at which the clearinghouse each day settles all accounts between clearing members for each open position in each contract month of each futures and options contract. Settlement prices are used to determine both margin calls and invoice prices for deliveries. |
| Short | (1) The selling side of an open futures contract; (2) a trader whose net position in the futures market shows an excess of open sales over open purchases; (3) selling (granting) an options contract. |
| Side | |
| Spot | (1) Market for immediate delivery and payment of the product. (2) Nearest delivery month of a futures contract. |
| Spot Equivalent Futures | |
| Spot Price | The price at which a physical, actual or spot commodity is selling at a given time and place. |
| Spread | The purchase of one futures or options contract against the sale of another futures or options contract on the same or related commodity, security, currency or index. |
| Squeeze | Situation in which those who are short cannot repurchase their contracts, except at an artificially inflated price, normally resulting from a temporary shortage of the item underlying the futures contract. |
| Supply | The total amount of a good or service available for purchase by consumers. |
| Swaps | an agreement to exchange cash flows in the future according to a prearranged formula |
| Tender | Means of settlement in a financial transaction |
| Theta | the rate of change of the price of an option or other derivative with the passage of time |
| Tick | Minimum price fluctuation of a futures or options contract. |
| Time value | The excess, if any, of an option's premium over its intrinsic value. |
| Trade | the act or process of buying, selling, or exchanging commodities, at either wholesale or retail, within a country or between countries |
| Trader | someone who purchases and maintains an inventory of goods to be sold |
| Underlying | (1) In derivatives, the security that must be delivered when a derivative contract, such as a put or call option, is exercised (2) In equities, the common stock that must be delivered when a warrant is exercised, or when a convertible bond or convertible preferred share is converted to common stock. |
| Uptrend | a tendency upward or toward growth, esp. in economic development |
| Variation margin | Settlement via the clearinghouse of daily or intraday gains and losses between clearing member firms. |
| Vega | the rate of change in the price of an option or other derivative with volatility |
| Volatility | A measure of variability, usually of prices, and a major factor influencing the price of an option. The standard deviation of a price series is commonly used to measure price volatility. |
| Volume | The number of contracts (either the long or the short side of the market) traded during a specified period of time. |
| Writer | The seller or grantor of an option. |
| Yield | a return provided by an instrument |
| Zero-sum game | A situation in which one person's gain must be matched by another person's loss. |