The cash-price equivalent reflected in the current futures price.

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

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

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

An option with a strike price that is equal, or approximately equal, to the current market price of the underlying futures contract.

Market situation in which futures prices are progressively lower in the distant delivery months. For instance, if the crude oil price for March is $30 per barrel and that for June is $27 per barrel, the backwardation for three months against February is $3.00 per barrel. (Backwardation is the opposite of contango).

Also See: Contango, Inverted Market.

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

The difference between the current cash price and the futures price of the same commodity. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.

The risk associated with an unexpected widening or narrowing of basis between the time a hedge position is established and the time that it is lifted.

Someone who thinks market prices will fall.

A period of declining market prices.

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

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

An option pricing formula initially developed by F. Black and M. Scholes for securities options and later refined by Black for options on futures.

A company or individual that executes futures and options orders on behalf of individual investors and / or financial and commercial institutions.

Someone who thinks market prices will rise.

A period of rising market prices.

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

Bars or ingots of precious metals, usually cast in standardized sizes.

An option that gives the buyer the right, but not the obligation, to purchase the underlying futures contract at the strike price on or before the expiration date.

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

An actual physical commodity someone is buying or selling, e.g., gold, silver, sugar, cocoa etc.

A place where people buy and sell the actual commodities.

Also See: Spot

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

See: Commodity Futures Trading Commission.

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

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

Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers.

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

See: Settlement Price

A range of prices at which buy and sell transactions took place during the market close.

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

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

The Federal regulatory agency established by the CFTC Act of 1974 to administer the Commodity Exchange Act.

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.

Market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month; the opposite of backwardation.

In energy futures, the simultaneous purchase of crude oil futures and the sale of petroleum product futures to establish a refining margin.

Also see: Gross Processing Margin.

Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures markets follow similar price trends.

Trading by telephone or by other means that takes place after the official market has closed. Originally it took place in the street on the curb outside the market. Under CFTC rules, curb trading is illegal. Also known as kerb trading.

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

Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. Margins are determined on the basis of market risk and contract value.

Also see: Clearing Margin

An order that expires automatically at the end of each day's trading session.

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

Traders who take positions in futures or options contracts and liquidate them on the same trading day before the market close. You may find many day traders trading in stock index futures.

Establishing and closing out the same futures market position within one day.

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

The specified month within which a futures contract matures and can be settled by delivery.

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.

A financial instrument, traded on or off an exchange, the price of which is directly dependent upon (or derived from) the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement . Futures and options come under derivatives.

The interest rate charged on loans by the Federal Reserve Bank.

Exchange for Physical.

Also see: Exchange of Futures for Cash.

(1) A theory named after Ralph Elliot, who contended that the stock market tends to move in discernible and predictable patterns reflecting the basic harmony of nature; (2) in technical analysis, a charting method based on the belief that all prices act as wavers, rising and falling rhythmically.

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

A transaction generally used by two hedgers who want to exchange futures for cash positions.

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

See: Strike Price.

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

See: Time Value

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

The rate of interest charged for the use of federal funds.

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

See: Gold Fixing.

An individual who executes orders on the floor of the exchanges for the account of one or more clearing members and is licensed by the Commodity Futures Trading Commission (CFTC)

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

See: 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.

A clause in a supply contract which permits either party not to fulfill the contractual commitments due to events beyond their control. These events may range from strikes to export delays in producing countries.

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.

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

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

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

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

An international electronic trading system for futures and options that allows participating exchanges to list their products for trading after the close of the exchanges' open outcry trading hours. Developed by Reuters Limited for use by the Chicago Mercantile Exchange (CME), Globex was launched on June 25, 1992, for certain CME contracts. Various MATIF (Marche a Terme International de France) contracts began trading on the system on March 15, 1993.

The setting of the gold price at 10:30 AM (morning fixing) and 3:00 PM (evening fixing) in London by five representatives of the London Gold Market.

Order which is valid at any time during market hours until executed or canceled. Also see: Open Order.

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

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.

Refers to the difference between the cost of a commodity and the combined sales income of the finished products which result from processing the commodity. Various industries have formulas to express the relationship of raw material costs to sales income from finished products.

Also see: Crack

See: Good 'Til Canceled order.

Ratio of the value of futures contracts purchased or sold to the value of the cash commodity being hedged, a computation necessary to minimize basis risk.

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

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

Also See: Selling (Short) Hedge, Purchasing (Long) Hedge.

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

See: Original Margin

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.

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.

An option having intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract.

The amount by which an option is in-the-money.

Also see: In-the-money

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

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.

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

Market indicators that signal the state of the economy for the coming months.

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

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

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

Also see: Offset

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

Also see: Floor Trader.

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

Buyer futures contracts to protect against a possible price increase of cash commodities that will e purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge. Long hedge is also called purchasing hedge.

A unit of trading. For example, one lot of gold represents one futures contract, which equals to 100 ounces of gold.

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

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

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

A call from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.

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

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

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

Taking a second futures or options position to close out the initial or opening position.

Organization of Petroleum Exporting Countries, 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 companies. Current Members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

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

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

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

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.

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

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.

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

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

An option with no intrinsic value, i.e., a call whose strike price is above the current futures price or a put whose strike price is below the current futures price.

A market where products such as stocks, foreign currencies, and other cash items are bought and sold by telephone and other means of communications.

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

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

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

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

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

Also see: Option Premium.

The generation of information about "future" cash market prices through the futures markets.

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

A customer order that specifies the price at which a trade can be executed.

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

Buyer futures contracts to protect against a possible price increase of cash commodities that will e purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge.

Also see: Hedging

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

A level above which prices have had difficulty penetrating.

A reversal within a major price trend.

A circular area on the trading floor of an exchange where traders and brokers stand while executing futures trades. Some exchanges use pits rather than rings.

Also see: Pit

The relationship between the probability of loss and profit. This ratio is often used as a basis for trade selection or comparison.

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

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

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.

Also see: Hedging

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

One who has sold futures contracts or plans to purchase a cash commodity. (verb) Selling futures contracts or initiating a cash forward contract sale without offsetting a particular market position.

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.

Usually refers to a cash market price for a physical commodity that is available for immediate delivery.

The price difference between two related markets or commodities.

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

Examples include: buying one futures contract and selling another futures contract of the same commodity but different delivery month; buying and selling the same delivery month of the same commodity on different futures exchanges; buying a given delivery month of one futures market and selling the same delivery month of a different, but related, futures market.

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 weighing of individual stocks, and the method of averaging used to establish an index.

An order to buy or sell when the market reaches a specified point. A stop order to buy becomes a market order when the futures contract trades (or is bid) at or above the stop price. A stop order to sell becomes a market order when the futures contract trades (or is offered) at or below the stop price.

The price at which the futures contract underlying a call or put option can be purchased (if a call) or sold (if a put). Also referred to as exercise price.

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

Also see: Resistance

Offsetting a position in one delivery month of a commodity and simultaneous initiation of a similar position in another delivery month of the same commodity, a tactic referred to as "rolling forward."

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

The derivative of the option price equation with respect to the remaining time to expiration of the option. A measure of the sensitivity of the value of the option to the passage of time.

Refers to a minimum change in price up or down.

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

The difference between a nation's imports and exports of merchandise.

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 trend line is called bullish; if down, it is called bearish.

The specific futures contract that is bought or sold by exercising an option.

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

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

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

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

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

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

A measure of the annual return on an investment.