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A B C
D E F G H
I J K L M N O P Q R S T
U V W X Y Z
- Accrued Interest:
- Interest earned between the most recent interest payment and the present date but not
yet paid to the lender.
- See Cash Commodity.
- Add-on Method:
- A method of paying interest where the interest is added onto the principal at maturity
or interest payment dates.
- Adjusted Futures Price:
- The cash-price equivalent reflected in the current futures price. This is calculated by
taking the futures price times the conversion factor for the particular financial
instrument (e.g., bond or note) being delivered.
- Against Actuals:
- See Exchange for Physicals.
- 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 (as a
seller of a call option) or a long futures position (as a seller of a put option).
- Associated Person (AP):
- An individual who solicits orders, customers, or customer funds (or who supervises
persons performing such duties) on behalf of a Futures Commission Merchant, an Introducing
Broker, a Commodity Trading Adviser, or a Commodity Pool Operator.
- Associate Membership:
- A Chicago Board of Trade membership that allows an individual to trade financial
instrument futures and other designated markets.
- 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.
- Balance of Payment:
- A summary of the international transactions of a country over a period of time including
commodity and service transactions, and gold movements.
- Bar Chart:
- A chart that graphs the high, low, and settlement prices for a specific trading session
over a given period of time.
- 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.
- Someone who thinks market prices will decline.
- Bear Market:
- A period of declining market prices.
- Bear Spread:
- In most commodities and financial instruments, the term refers to selling the nearby
contract month, and buying the deferred contract, to profit from a change in the price
- An expression indicating a desire to buy a commodity at a given price, opposite of
- Board of Trade Clearing Corporation:
- An independent corporation that settles all trades made at the Chicago Board of Trade
acting as a guarantor for all trades cleared by it, reconciles all clearing member firm
accounts each day to ensure that all gains have been credited and all losses have been
collected, and sets and adjusts clearing member firm margins for changing market
conditions. Also referred to as clearing corporation. See Clearinghouse.
- 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).
- A company or individual that executes futures and options orders on behalf of financial
and commercial institutions and/or the general public.
- Brokerage Fee:
- See Commission Fee.
- Brokerage House:
- See Futures
- Someone who thinks market prices will rise.
- Bull Market:
- A period of rising market prices.
- Bull Spread:
- In most commodities and financial instruments, the term refers to buying the nearby
month, and selling the deferred month, to profit from the change in the price
- Butterfly Spread:
- The placing of two interdelivery spreads in opposite directions with the center delivery
month common to both spreads.
- Buying Hedge:
- See Purchasing Hedge.
- Calendar Spread:
- See Interdelivery Spread
or Horizontal Spread.
- 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
- Canceling Order:
- An order that deletes a customer's previous order.
- Carrying Charge:
- For physical commodities such as grains and metals, the cost of storage space,
insurance, and finance charges incurred by holding a physical commodity. In interest rate
futures markets, it refers to the differential between the yield on a cash instrument and
the cost of funds necessary to buy the instrument. Also referred to as cost of carry
- Grain and oilseed commodities not consumed during the marketing year and remaining in
storage at year's end. These stocks are "carried over" into the next marketing
year and added to the stocks produced during that crop year.
- Cash Commodity:
- An actual physical commodity someone is buying or selling, e.g., soybeans, corn, gold,
silver, Treasury bonds, etc. Also referred to as actuals.
- Cash Contract:
- A sales agreement for either immediate or future delivery of the actual product.
- Cash Market:
- A place where people buy and sell the actual commodities, i.e., grain elevator, bank,
etc. See Spot and Forward Contract.
- Cash Settlement:
- Transactions generally involving index-based futures contracts that are settled in cash
based on the actual value of the index on the last trading day, in contrast to those that
specify the delivery of a commodity or financial instrument.
- Certificate of Deposit (CD):
- A time deposit with a specific maturity evidenced by a certificate.
- The use of charts to analyze market behavior and anticipate future price movements.
Those who use charting as a trading method plot such factors as high, low, and settlement
prices; average price movements; volume; and open interest. Two basic price charts are bar
charts and point-and-figure charts. See Technical Analysis.
- Colloquialism implying that a commodity is underpriced.
- Cheapest to Deliver:
- A method to determine which particular cash debt instrument is most profitable to
deliver against a futures contract.
- 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.
- Clearing Corporation:
- See Board of Trade
- 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 contractsacting as a buyer to every clearing member seller and a seller
to every clearing member buyer.
- Clearing Margin:
- 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. See Customer Margin.
- Clearing Member:
- A member of an exchange clearinghouse. Memberships in clearing organizations are usually
held by companies. Clearing members are responsible for the financial commitments of
customers that clear through their firm.
- Closing Price:
- See Settlement Price.
- Closing Range:
- A range of prices at which buy and sell transactions took place during the market close.
- COM Membership:
- A Chicago Board of Trade membership that allows an individual to trade contracts listed
in the commodity options market category.
- Commission Fee:
- A fee charged by a broker for executing a transaction. Also referred to as brokerage
- Commission House:
- See Futures
Commission Merchant (FCM).
- 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.
- Commodity Credit Corp.:
- A branch of the U.S. Department of Agriculture, established in 1933, that supervises the
government's farm loan and subsidy programs.
- Commodity Futures Trading Commission (CFTC):
- A federal regulatory agency established under the Commodity Futures Trading Commission
Act, as amended in 1974, that oversees futures trading in the United States. The
commission is comprised of five commissioners, one of whom is designated as chairman, all
appointed by the President subject to Senate confirmation, and is independent of all
- Commodity Pool:
- An enterprise in which funds contributed by a number of persons are combined for the
purpose of trading futures contracts or commodity options.
- Commodity Pool Operator:
- An individual or organization that operates or solicits funds for a commodity pool.
- Commodity Trading Adviser:
- A person who, for compensation or profit, directly or indirectly advises others as to
the value or the advisability of buying or selling futures contracts or commodity options.
Advising indirectly includes exercising trading authority over a customer's account as
well as providing recommendations through written publications or other media.
- Computerized Trading Reconstruction System:
- A Chicago Board of Trade computerized surveillance program that pinpoints in any trade
the traders, the contract, the quantity, the price, and time of execution to the nearest
- Concurrent Indicators:
- See Lagging Indicators.
- Consumer Price Index (CPI):
- A major inflation measure computed by the U.S. Department of Commerce. It measures the
change in prices of a fixed market basket of some 385 goods and services in the previous
- Contract Grades:
- See Deliverable Grades.
- Contract Month:
- See Delivery Month.
- Controlled Account:
- See Discretionary Account.
- A term referring to cash and futures prices tending to come together (i.e., the basis
approaches zero) as the futures contract nears expiration.
- Conversion Factor:
- A factor used to equate the price of T-bond and T-note futures contracts with the
various cash T-bonds and T-notes eligible for delivery. This factor is based on the
relationship of the cash-instrument coupon to the required 8 percent deliverable grade of
a futures contract as well as taking into account the cash instrument's maturity or call.
- Cost of Carry (or Carry):
- See Carrying Charge.
- 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.
- Crop Condition:
- Very Poor - Extreme degree of loss to yield potential, complete or near crop
failure. Pastures provide very little or no feed considering the time of year.
Supplemental feeding is required to maintain livestock condition.
- Poor - Heavy degree of loss to yield potential which can be caused by excess
soil moisture, drought, disease, etc. Pastures are providing only marginal feed for the
current time of year. Some supplemental feeding is required to maintain livestock
- Fair - Less than normal crop condition. Yield loss is a possibility but the
extent is unknown. Pastures are providing generally adequate feed but still less than
normal for the time of year.
- Good - Yield prospects are normal. Moisture levels are adequate and disease,
insect damage, and weed pressures are minor. Pastures are providing adequate feed supplies
for the current time of year.
- Excellent - Yield prospects are above normal. Crops are experiencing little or
no stress. Disease, insect damage, and weed pressures are insignificant. Pastures are
supplying feed in excess of what is normally expected at the current time of year.
- Crop (Marketing) Year:
- The time span from harvest to harvest for agricultural commodities. The crop marketing
year varies slightly with each ag commodity, but it tends to begin at harvest and end
before the next year's harvest, e.g., the marketing year for soybeans begins September 1
and ends August 31. The futures contract month of November represents the first major
new-crop marketing month, and the contract month of July represents the last major
old-crop marketing month for soybeans.
- Crop Reports:
- Reports compiled by the U.S. Department of Agriculture on various ag commodities that
are released throughout the year. Information in the reports includes estimates on planted
acreage, yield, and expected production, as well as comparison of production from previous
- Hedging a cash commodity using a different but related futures contract when there is no
futures contract for the cash commodity being hedged and the cash and futures markets
follow similar price trends (e.g., using soybean meal futures to hedge fish meal).
- 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:
- 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. FCMs are responsible for overseeing customer margin accounts. Margins are
determined on the basis of market risk and contract value. Also referred to as
performance-bond margin. See Clearing Margin.
- Daily Trading Limit:
- The maximum price range set by the exchange cash day for a contract.
- Day Traders:
- Speculators who take positions in futures or options contracts and liquidate them prior
to the close of the same trading day.
- Deferred (Delivery) Month:
- The more distant month(s) in which futures trading is taking place, as distinguished
from the nearby (delivery) month.
- Deliverable Grades:
- The standard grades of commodities or instruments listed in the rules of the exchanges
that must be met when delivering cash commodities against futures contracts. Grades are
often accompanied by a schedule of discounts and premiums allowable for delivery of
commodities of lesser or greater quality than the standard called for by the exchange.
Also referred to as contract grades.
- The transfer of the cash commodity from the seller of a futures contract to the buyer of
a futures contract. Each futures exchange has specific procedures for delivery of a cash
commodity. Some futures contracts, such as stock index contracts, are cash settled.
- Delivery Day:
- The third day in the delivery process at the Chicago Board of Trade, when the buyer's
clearing firm presents the delivery notice with a certified check for the amount due at
the office of the seller's clearing firm.
- 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 Points.:
- The locations and facilities designated by a futures exchange where stocks of a
commodity may be delivered in fulfillment of a futures contract, under procedures
established by the exchange.
- 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.
- Demand, Law of:
- The relationship between product demand and price.
- Price differences between classes, grades, and delivery locations of various stocks of
the same commodity.
- 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 Bank.
- An arrangement by which the holder of the account gives written power of attorney to
another person, often his broker, to make trading decisions. Also known as a controlled or
- The application of statistical and mathematical methods in the field of economics to
test and quantify economic theories and the solutions to economic problems.
- Equilibrium Price:
- The market price at which the quantity supplied of a commodity equals the quantity
- U.S. dollars on deposit with a bank outside of the United States and, consequently,
outside the jurisdiction of the United States. The bank could be either a foreign bank or
a subsidiary of a U.S. bank.
- European Terms:
- A method of quoting exchange rates, which measures the amount of foreign currency needed
to buy one U.S. dollar, i.e., foreign currency unit per dollar. See Reciprocal of European
- Exchange for Physicals:
- A transaction generally used by two hedgers who want to exchange futures for cash
positions. Also referred to as "against actuals" or "versus cash".
- 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
- Exercise Price:
- See Strike Price.
- Expanded Traded Hours:
- Additional trading hours of specific futures and options contracts at the Chicago Board
of Trade that overlap with business hours in other time zones.
- Expiration Date:
- Options on futures generally expire on a specific date during the month preceding the
futures contract delivery month. For example, an option on a March futures contract
expires in February but is referred to as a March option because its exercise would result
in a March futures contract position.
- Extrinsic Value:
- See Time Value.
- Face Value:
- The amount of money printed on the face of the certificate of a security; the original
dollar amount of indebtedness incurred.
- Federal Funds:
- Member bank deposits at the Federal Reserve; these funds are loaned by member banks to
other member banks.
- Federal Funds Rate:
- The rate of interest charged for the use of federal funds.
- Federal Housing Administration (FHA):
- A division of the U.S. Department of Housing and Urban Development that insures
residential mortgage loans and sets construction standards.
- Federal Reserve System:
- A central banking system in the United States, created by the Federal Reserve Act in
1913, designed to assist the nation in attaining its economic and financial goals. The
structure of the Federal Reserve System includes a Board of Governors, the Federal Open
Market Committee, and 12 Federal Reserve Banks.
- Feed Ratio:
- A ratio used to express the relationship of feeding costs to the dollar value of
livestock. See Hog/Corn Ratio
and Steer/Corn Ratio.
- Fill-or Kill:
- A customer order that is a price limit order that must be filled immediately or
- Financial Analysis Auditing Compliance Tracking System (FACTS):
- The National Futures Association's computerized system of maintaining financial records
of its member firms and monitoring their financial conditions.
- Financial Instrument:
- There are two basic types: (1) a debt instrument, which is a loan with an agreement to
pay back funds with interest; (2) an equity security, which is share or stock in a
- First Notice Day:
- According to Chicago Board of Trade rules, the first day on which a notice of intent to
deliver a commodity in fulfillment of a given month's futures contract can be made by the
clearinghouse to a buyer. The clearinghouse also informs the sellers who they have been
matched up with.
- Floor Broker (FB):
- An individual who executes orders for the purchase or sale of any commodity futures or
options contract on any contract market for any other person.
- Floor Trader (FT):
- An individual who executes trades for the purchase or sale of any commodity futures or
options contract on any contract market for such individual's own account.
- Foreign Exchange Market:
- See Forex Market.
- Forex Market:
- An over-the-counter market where buyers and sellers conduct foreign exchange business by
telephone and other means of communication. Also referred to as foreign exchange market.
- Forward (Cash)
- A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer
sometime in the future. Forward contracts, in contrast to futures contracts, are privately
negotiated and are not standardized.
- Full Carrying Charge Market:
- A futures market where the price difference between delivery months reflects the total
costs of interest, insurance, and storage.
- Full Membership (CBOT):
- A Chicago Board of Trade membership that allows an individual to trade all futures and
options contracts listed by the exchange.
- Fundamental Analysis:
- A method of anticipating future price movement using supply and demand information.
- Futures Commission
- An individual or organization that solicits or accepts orders to buy or sell futures
contracts or options on futures and accepts money or other assets from customers to
support such orders. Also referred to as "commission house" or "wire
- Futures Contract:
- A legally binding agreement, made on the trading floor of a futures exchange, to buy or
sell a commodity or financial instrument sometime in the future. Futures contracts are
standardized according to the quality, quantity, and delivery time and location for each
commodity. The only variable is price, which is discovered on an exchange trading floor.
- Futures Exchange:
- A central marketplace with established rules and regulations where buyers and sellers
meet to trade futures and options on futures contracts.
- A measurement of how fast delta changes, given a unit change in the underlying futures
- GIM Membership (CBOT):
- A Chicago Board of Trade membership that allows an individual to trade all futures
contracts listed in the government instrument market category.
- A global after-hours electronic trading system.
- Grain Terminal:
- Large grain elevator facility with the capacity to ship grain by rail and/or barge to
domestic or foreign markets.
- Gross Domestic Product:
- The value of all final goods and services produced by an economy over a particular time
period, normally a year.
- Gross National Product:
- 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:
- The difference between the cost of soybeans and the combined sales income of the
processed soybean oil and meal.
- An individual or company owning or planning to own a cash commoditycorn, soybeans,
wheat, U.S. Treasury bonds, notes, bills etc. and concerned that the cost of the
commodity may change before either buying or selling it in the cash market. A hedger
achieves protection against changing cash prices by purchasing (selling) futures contracts
of the same or similar commodity and later offsetting that position by selling
(purchasing) futures contracts of the same quantity and type as the initial transaction.
- 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. See Selling (Short) Hedge and Purchasing (Long) Hedge.
- The highest price of the day for a particular futures contract.
- Hog/Corn Ratio:
- The relationship of feeding costs to the dollar value of hogs. It is measured by
dividing the price of hogs ($/hundredweight) by the price of corn ($/bushel). When corn
prices are high relative to pork prices, fewer units of corn equal the dollar value of 100
pounds of pork. Conversely, when corn prices are low in relation to pork prices, more
units of corn are required to equal the value of 100 pounds of pork. See Feed Ratio.
- See Option Buyer.
- 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.
- IDEM Membership (CBOT):
- A Chicago Board of Trade membership of trading privileges for futures contract in the
index, debt, and energy markets category (gold, municipal bond index, 30-day fed funds,
and stock index futures).
- Initial Margin:
- See Original Margin
- Intercommodity Spread:
- The purchase of a given delivery month of one futures market and the simultaneous sale
of the same delivery month of a different, but related, futures market.
- Interdelivery Spread:
- The purchase of one delivery month of a given futures contract and simultaneous sale of
another delivery month of the same commodity on the same exchange. Also referred to as an
intramarket or calendar spread.
- Intermarket Spread:
- The sale of a given delivery month of a futures contract on one exchange and the
simultaneous purchase of the same delivery month and futures contract on another exchange.
- In-the-Money Option:
- An option having intrinsic value. A call option is in-the-money if its strike price is
below the current price of the underlying futures contract. A put option is in-the-money
if its strike price is above the current price of the underlying futures contract. See Intrinsic
- Intrinsic Value:
- The amount by which an option is in-the-money. See In-the-Money Option
- Introducing Broker:
- A person or organization that solicits or accepts orders to buy or sell futures
contracts or commodity options but does not accept money or other assets from customers to
support such orders.
- Inverted Market:
- A futures market in which the relationship between two delivery months of the same
commodity is abnormal.
- Invisible Supply:
- Uncounted stocks of a commodity in the hands of wholesalers, manufacturers, and
producers that cannot be identified accurately; stocks outside commercial channels but
theoretically available to the market.
- Lagging Indicators:
- Market indicators showing the general direction of the economy and confirming or denying
the trend implied by the leading indicators. Also referred to as concurrent indicators.
- Last Trading Day:
- According to the Chicago Board of Trade rules, the final day when trading may occur in a
given futures or 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).
- Leading Indicators:
- Market indicators that signal the state of the economy for the coming months. Some of
the leading indicators include:
- average manufacturing workweek, initial claims for unemployment insurance, orders for
consumer goods and material, percentage of companies reporting slower deliveries, change
in manufacturers' unfilled orders for durable goods, plant and equipment orders, new
building permits, index of consumer expectations, change in material prices, prices of
stocks, change in money supply.
- The ability to control large dollar amounts of a commodity with a comparatively small
amount of capital.
- Limit Order:
- An order in which the customer sets a limit on the price and/or time of execution.
- See Position Limit, Price Limit, Variable Limit.
- The ability to buy (sell) contracts on one exchange (such as the Chicago Mercantile
Exchange ) and later sell (buy) them on another exchange (such as the Singapore
International Monetary Exchange.)
- A characteristic of a security or commodity market with enough units outstanding to
allow large transactions without a substantial change in price. Institutional investors
are inclined to seek out liquid investments so that their trading activity will not
influence the market price.
- 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. See Offset.
- Liquidity Data Bank
- A computerized profile of CBOT market activity, used by technical traders to analyze
price trends and develop trading strategies. There is a specialized display of daily
volume data and time distribution of prices for every commodity traded on the Chicago
Board of Trade.
- Loan Program:
- A federal program in which the government lends money at preannounced rates to farmers
and allows them to use the crops they plant for the upcoming crop year as collateral.
Default on these loans is the primary method by which the government acquires stock of
- Loan Rate:
- The amount lent per unit of a commodity to farmers.
- One who has bought futures contracts or owns a cash commodity.
- Long Hedge:
- See Purchasing Hedge.
- 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.
- Managed Account:
- See Clearing Margin and Customer Margin.
- Managed Futures:
- Represents an industry comprised of professional money mangers known as commodity
trading advisors who manage client assets on a discretionary basis, using global futures
markets as an investment medium.
- See Clearing Margin and Customer Margin.
- Margin Call:
- A call from a clearinghouse to a clearing member, or from a brokerage firm to a
customer, to bring margin deposits up to a required minimum level.
- Market Information Data Inquiry System( MIDIS):
- Historical Chicago Board of Trade price, volume, open interest data and other market
information accessible by computers within the Chicago Board of Trade building.
- Market Order:
- An order to buy or sell a futures contract of a given delivery month to be filled at the
best possible price and as soon as possible.
- Market Price Reporting and Information Systems:
- The Chicago Board of Trade's computerized price-reporting system.
- Market Profile:
- A Chicago Board of Trade information service that helps technical traders analyze price
trends. Market Profile consists of the Time and Sales ticker and the Liquidity Data
- Market Reporter:
- A person employed by the exchange and located in or near the trading pit who records
prices as they occur during trading.
- To debit or credit on a daily basis a margin account based on the close of that day's
trading session. In this way, buyers an sellers are protected against the possibility of
- Minimum Price Fluctuation:
- See Tick.
- Money Supply:
- The amount of money in the economy, consisting primarily of currency in circulation plus
deposits in banks:
- M-1U.S. money supply consisting of currency held by the public, traveler's checks,
checking account funds, NOW and super- NOW accounts, automatic transfer service accounts,
and balances in credit unions. M-2U.S. money supply consisting M-1 plus savings and
small time deposits (less than $100,000) at depository institutions, overnight repurchase
agreements at commercial banks, and money market mutual fund accounts. M-3U.S. money
supply consisting of M-2 plus large time deposits ($100,000 or more) at depository
institutions, repurchase agreements with maturities longer than one day at commercial
banks, and institutional money market accounts.
- Moving-Average Charts:
- A statistical price analysis method of recognizing different price trends. A moving
average is calculated by adding the prices for a predetermined number of days and then
dividing by the number of days.
- Municipal Bonds:
- Debt securities issued by state and local governments, and special districts and
- National Futures Association (NFA):
- An industrywide, 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.
- Nearby (Delivery) Month:
- The futures contract month closest to expiration. Also referred to as spot month.
- Negative Yield Curve:
- See Yield Curve.
- Notice Day:
- According to Chicago Board of Trade rules, the second day of the three-day delivery
process when the clearing corporation matches the buyer with the oldest reported long
position to the delivering seller and notifies both parties. See First Notice Day.
- An expression indicating one's desire to sell a commodity at a given price; opposite of
- Taking a second futures or options position opposite to 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. Members are:
- Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi
Arabia, the United Arab Emirates, and Venezuela.
- Opening Range:
- A range of prices at which buy an sell transactions took place during the opening of the
- Open Interest:
- The total number of futures or options contracts of a given commodity that have not yet
been offset by an opposite futures or option transaction nor fulfilled by delivery of the
commodity or option exercise. Each open transaction has a buyer and a seller, but for
calculation of open interest, only one side of the contract is counted.
- Open Market Operation:
- The buying and selling of government securitiesTreasury bills, notes, and
bondsby the Federal Reserve.
- Open Outcry:
- 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
- Option Buyer:
- The purchaser of either a call or put option. Option buyers receive the right, but not
the obligation, to assume a futures position. Also referred to as the holder.
- Option Premium:
- The price of an optionthe sum of money that the option buyer pays and the option
seller receives for the rights granted by the option.
- Option Seller:
- The person who sells an option in return for a premium and is obligated to perform when
the holder exercises his right under the option contract. Also referred to as the writer.
- Option Spread:
- The simultaneous purchase and sale of one or more options contracts, futures, and/or
- Option Writer:
- See Option Seller.
- Original Margin:
- The amount a futures market participant must deposit into his margin account at the time
he places an order to buy or sell a futures contract. Also referred to as initial margin.
- Out-of-the-Money Option:
- An option with no intrinsic value, i.e., a call whose strike price is above the current
futures price or a put whose strike price is below the current futures price.
- Over-the-Counter Market:
- A market where products such as stocks, foreign currencies, and other cash items are
bought and sold by telephone and other means of communications.
- Purchase and Sell Statement:
- A Statement sent by a commission house to a customer when his futures or options on
futures position ha changed, showing the number of contracts bought or sold, the prices at
which the contracts were bought or sold, the gross profit or loss, the commission charges,
and the net profit or loss on the transaction.
- The face value of a security. For example, a bond selling at par is worth the same
dollar amount it was issued for or at which it will be redeemed at maturity.
- Payment-In-Kind Program:
- A government program in which farmers who comply with a voluntary acreage-control
program and set aside an additional percentage of acreage specified by the government
receive certificates that can be redeemed for government-owned stocks of grain.
- Performance Bond Margin:
- The amount of money deposited by both buyer and seller of a futures contract or an
options seller to ensure performance of the term of the contract. Margin in commodities is
not a payment of equity or down payment on the commodity itself, but rather it is a
security deposit. See Customer
Margin and Clearing Margin
- Phenological Stages:
Barley, Oats, Wheat and Rice Phenological Stages:
- Emerged - As soon as the plants are visible.
- Headed - The head is present, visible, and fully emerged.
- The area on the trading floor where futures and options on futures contracts are bought
and sold. Pits are usually raised octagonal platforms with steps descending on the inside
that permit buyers and sellers of contracts to see each other.
- Point-and-Figure Charts:
- Charts that show price changes of a minimum amount regardless of the time period
- A market commitment. A buyer of a futures contract is said to have a long position and,
conversely, a seller of futures contracts is said to have a short position.
- Position Day:
- According to the Chicago Board of Trade rules, the first day in the process of making or
taking delivery of the actual commodity on a futures contract. The clearing firm
representing the seller notifies the Board of Trade Clearing Corporation that its short
customers want to deliver on a futures contract.
- Position Limit:
- The maximum number of speculative futures contracts one can hold as determined by the
Commodity Futures Trading Commission and/or the exchange upon which the contract is
traded. Also referred to as trading limit.
- Position Trader:
- An approach to trading in which the trader either buys or sells contracts and holds them
for an extended period of time.
- (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. See Option Premium.
- Price Discovery:
- The generation of information about "future" cash market prices through the
- Price Limit:
- The maximum advance or declinefrom the previous day's settlementpermitted
for a contract in one trading session by the rules of the exchange. See also Variable Limit.
- Price Limit Order:
- A customer order that specifies the price at which a trade can be executed.
- Primary Dealer:
- A designation given by the Federal Reserve System to commercial banks or broker/dealers
who meet specific criteria. Among the criteria are capital requirements and meaningful
participation in the Treasury auctions.
- Primary Market:
- Market of new issues of securities.
- Prime Rate:
- Interest rate charged by major banks to their most creditworthy customers.
- Producer Price Index (PPI):
- An index that shows the cost of resources needed to produce manufactured goods during
the previous month.
- 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.
- Purchasing Hedge or Long
- 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. See Hedging.
- Put Option:
- An option that gives the option buyer the right but not the obligation to sell (go
"short") the underlying futures contract at the strike price on or before the
- Range (Price):
- The price span during a given trading session, week, month, year, etc.
- Reciprocal of
- One method of quoting exchange rates, which measured the U.S. dollar value of one
foreign currency unit, i.e., U.S. dollars per foreign units. See European Terms.
- Repurchase Agreements or (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.
- Reserve Requirements:
- The minimum amount of cash and liquid assets as a percentage of demand deposits and time
deposits that member banks of the Federal Reserve are required to maintain.
- A level above which prices have had difficulty penetrating.
- The reopening the following day of specific futures and options markets that also trade
during the evening session at the Chicago Board of Trade.
- Reverse Crush Spread:
- The sale of soybean futures and the simultaneous purchase of soybean oil and meal
futures. See Crush Spread.
- Messengers who rush orders received by phone clerks to brokers for execution in the pit.
- A trader 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.
- Common or preferred stock; a bond of a corporation, government, or quasi- government
- Selling Hedge or Short Hedge:
- Selling futures contracts to protect against possible declining prices of commodities
that will be sold in the future. At the time the cash commodities are sold, the open
futures position is closed by purchasing an equal number and type of futures contracts as
those that were initially sold. See Hedging.
- See Settlement Price.
- Settlement Price:
- The last price paid for a commodity on any trading day. The exchange clearinghouse
determines a firm's net gains or losses, margin requirements, and the next day's price
limits, based on each futures and options contract settlement price. If there is a closing
range of prices, the settlement price is determined by averaging those prices. Also
referred to as settle or closing price.
- Short (noun):
- 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.
- Short Hedge:
- See Selling Hedge.
- Simulation Analysis of Financial Exposure:
- A sophisticated computer risk-analysis program that monitors the risk of clearing member
and large-volume traders at the Chicago Board of Trade. It calculates the risk of change
in market prices or volatility to a firm carrying open positions.
- 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
- Spot Month:
- See Nearby (Delivery) Month.
- 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.
- 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 compositionthe sampling of
stocks, the weighing of individual stocks, and the method of averaging used to establish
- Stock Market:
- A market in which shares of stock are bought and sold.
- Stop-Limit Order:
- A variation of a stop order in which a trade must be executed at the exact price or
better. If the order cannot be executed, it is held until the stated price or better is
- Stop Order:
- An order to buy or sell when the market reaches a specified point. A stop order to buy
becomes a market order when the futures contract trades (or is bid) at or above the stop
price. A stop order to sell becomes a market order when the futures contract trades (or is
offered) at or below the stop price.
- Strike Price:
- The price at which the futures contract underlying a call or put option can be purchased
(if a call) or sold (if a put). Also referred to as exercise price.
- Supply, Law of:
- The relationship between product supply and its price.
- The place on a chart where the buying of futures contracts is sufficient to halt a price
- The end of the evening session for specific futures and options markets traded at the
Chicago Board of Trade.
- Technical Analysis:
- Anticipating future price movement using historical prices, trading volume, open
interest and other trading data to study price patterns.
- The smallest allowable increment of price movement for a contract.
- Time Limit Order:
- A customer order that designates the time during which it can be executed.
- Time and Sales Ticker:
- Part of the Chicago Board of Trade Market Profile system consisting of an on-line
graphic service that transmits price and time information throughout the day.
- Part of the order-routing process in which the time of day is stamped on an order. An
order is time-stamped when it is (1) received on the trading floor, and (2) completed.
- Time Value:
- The amount of money option 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.
- Top and Sub-Soil Moisture:
(with top-soil defined as the top 6 inches):
- Very Short - Soil moisture supplies are significantly less than what is
required for normal plant development. Growth has been stopped or nearly so and plants are
showing visible signs of moisture stress. Under these conditions, plants will quickly
suffer irreparable damage.
- Short - Soil dry. Seed germination and/or normal crop growth and development
would be curtailed.
- Adequate - Soil moist. Seed germination and/or crop growth and development
would be normal or unhindered.
- Surplus - Soil wet. Fields may be muddy and will generally be unable to absorb
additional moisture. Young developing crops may be yellowing from excess moisture.
- Trade Balance:
- The difference between a nation's imports and exports of merchandise.
- Trading Limit:
- See Position Limit.
- Treasury Bill:
- See U.S. Treasury Bill.
- Treasury Bond:
- See U.S. Treasury Bond.
- Treasury Note:
- See U.S. Treasury Note.
- Underlying Futures Contract:
- The specific futures contract that is bought or sold by exercising an option.
- U.S. Treasury Bill:
- A short-term U.S. government debt instrument with an original maturity of one year or
less. Bills are sold at a discount from par with the interest earned being the difference
between the face value received at maturity and the price paid.
- U.S. Treasury Bond:
- Government-debt security with a coupon and original maturity of more than 10 years.
Interest is paid semiannually.
- U.S. Treasury Note:
- Government-debt security with a coupon and original maturity of one to 10 years.
- Variable Limit:
- According to the Chicago Board of Trade rules, an expanded allowable price range set
during volatile markets.
- Variation Margin:
- During periods of great market volatility or in the case of high-risk accounts,
additional margin deposited by a clearing member firm to an exchange.
- Versus Cash:
- See Exchange for Physical.
- Verticle Spread:
- Buying and selling puts or calls of the same expiration month but different strike
- Voice of the Tomb:
- According to CBOT legend an old trader who died early in the 20th century, left his
daughter a list of dates to buy and sell corn and wheat each year. (This pre-dated soybean
trading.) They are an early example of seasonal trades. The dates are: Wheat - sell Jan
10, buy Feb 22, sell May 10, buy Jly 1, sell Sept 10, buy Nov 28. - Corn - buy Mar 3, sell
May 20, buy Jun 25, sell Aug 10.
- 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
- 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.
- Warehouse Receipt:
- 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.
- Wire House:
- See Futures
Commission Merchant (FCM)
- See Option Seller.
- A measure of the annual return on an investment.
- Yield Curve:
- A chart in which the yield level is plot on the vertical axis and the term to maturity
of debt instruments of similar creditworthiness is plotted n the horizontal axis. The
yield curve is positive when long-term rates are higher than short-term rates However,
yield curve is negative or inverted.
- Yield to Maturity:
- The rate of return an investor receives if a fixed-income security is held to maturity.
Information provided is taken from sources believed to be reliable but
is not guaranteed as to its accuracy or completeness. The Rules and Regulations of the
Chicago Board of Trade and/or the Mid-America Commodity Exchange should be consulted as
the authoritative source for information,