Glossary of Futures and Commodities Trading Terms

A

Abandon
The act of an option holder in electing not to exercise or offset an option.

Accommodation Trading
Non-competitive trading entered into by a trader, usually to assist another with illegal trades.

Action Type
An Action Type is a uniform category of rule violation, such as floor recordkeeping violations, sales practice violations and trade practice violations.

Actuals
The physical or cash commodity, as distinguished from a commodity futures contract. See also Cash Commodity or Spot Commodity.

Adjudication
The determination of a controversy and a pronouncement of a judgment based on evidence presented. Implies a final judgment of the court or other body deciding the matter, as opposed to a proceeding in which the merits of the cause of action were not reached.

Adjudication Committee
A committee empowered by a self-regulatory organization for the purpose of determining an issue of fact and reaching a decision on the basis of evidence presented.

Administrative Hearing
A proceeding wherein evidence is taken for the purpose of determining an issue of fact and reaching a decision on the basis of that evidence. An Administrative Hearing may take place outside the judicial process, before officials who have been granted judicial authority expressly for the purpose of conducting such hearings.

Administrative Law
Law created by administrative agencies by way of rules, regulations, orders and decisions.

Administrative Law Judge (ALJ)
The presiding officer of an administrative hearing. An ALJ does not sit as a law judge, and his power is essentially one of recommendation. In the federal system, the ALJ is empowered to administer oaths and affirmations, issue subpoenas, rule on evidence presented, take depositions, regulate the course of the hearing and make or recommend decisions.

Affidavit
A written statement made under oath.

Affirm
The act of an appellate body upholding a decision of a trial court, an adjudication committee or a lower appellate court is called affirming the decision.

Against Actuals
A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as Exchange for Physicals or Versus Cash.

Aggregation
The policy under which all futures positions owned or controlled by one trader or group of traders are combined to determine reporting status and speculative limit compliance.

Agricultural Trade-Option Merchant (ATM)
An individual or organization which solicits or offers trade options for sale. Must be registered with the Commodity Futures Trading Commission.

Aid and Abet
To actively, knowingly, intentionally, or purposefully facilitate or assist another individual in the commission or attempted commission of a crime.

Allowances
The discounts (premiums) allowed for grades or locations of a commodity lower (higher) than the par (or basis) grade or location specified in the futures contract. See also Differentials.

Answer
A written response to a demand or a third party claim. A written submission filed by a respondent named in a Complaint which answers each allegation in the Complaint by admitting, denying or averring lack of sufficient knowledge to admit or deny the allegation.

Appeal
A request to an appellate body to review a lower court’s or an adjudication committee’s decision.

Appeals Committee
A committee empowered by a self-regulatory organization for the purpose of hearing and deciding appeals from and reviews of decisions by hearing committees.

Appellant
The party bringing the appeal.

Appellate
About appeals; an appellate court has the power to review the judgment of a lower court or tribunal.

Appellee
The party against whom an appeal is brought.

Approved Delivery Facility
Any bank, stockyard, mill, storehouse, plant, elevator or other depository that is authorized by an exchange for the delivery of commodities tendered on futures contracts.

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

Arbitration
The process of settling disputes between parties. NFA’s arbitration program provides a forum for resolving futures-related disputes between members or between members and customers.

Arbitration Panel
The arbitrators (one or three) appointed by NFA to hear and decide disputes brought to NFA for arbitration.

Arbitrator
A person chosen to decide disputes between parties in an arbitration proceeding.

Asian Option
An option whose payoff depends on the average price of the underlying asset during some portion of the life of the option.

Ask
Also called Offer. Indicates a willingness to sell a futures contract at a given price. See also Bid.

Assignable Contract
One which allows the holder to convey his rights to a third party. Exchange-traded commodities are not assignable.

Associate Member
A person who is associated with an NFA Member within the meaning of the term associated and who is required to be registered as an associated person with the Commodity Futures Trading Commission.

Associate Responsibility Action (ARA)
An action whereby an NFA Associate Member may be suspended from membership or may otherwise be directed to take remedial action when the President of NFA, with the concurrence of the Executive Committee, has reason to believe that the action is necessary to protect the commodity futures markets, customers or other Members or Associates of NFA. This may be a summary action.

Associated Person (AP)
An individual who solicits orders, customers or customer funds on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor or a commodity pool operator and who is registered with the CFTC.

At the Market
An order to buy or sell a futures contract at whatever price is obtainable when the order reaches the trading floor. See also Market Order.

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

Audit Trail
The record of trading information identifying, for example, the brokers participating in each transaction, the firms clearing the trade, the terms and time of the trade, and, ultimately, and when applicable, the customers involved.

Award
The written decision of the arbitrators.

B

Back Months
Those futures delivery months with expiration or delivery dates furthest into the future; futures delivery months other than the spot or nearby delivery month.

Backwardation
A market in which futures prices are progressively lower in the distant delivery months; the opposite of Contango. See also Inverted Market.

Bad Faith
Dishonesty or fraud in a transaction, such as entering into an agreement with no intention of ever living up to its terms, or knowingly misrepresenting the quality of something that is being bought or sold.

Banker’s Acceptance
A draft or bill of exchange accepted by a bank where the accepting institution guarantees payment. Used extensively in foreign trade transactions.

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

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

Basis Grade
The grade of a commodity used as the standard or par grade of a futures contract.

Basis Point
The measurement of a change in the yield of a debt security. One basis point equals 1/100 of a percent.

Basis Quote
Offer or sale of a cash commodity in terms of the difference above or below a futures price (e.g., 10 cents over December corn)

Basis Risk
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.

Bear
One who expects a decline in prices. The opposite of a Bull. A news item is considered bearish if it is expected to result in lower prices.

Bear Market
A market in which prices are declining.

Bear Spread
The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation does not materialize. In agricultural products, this is accomplished by selling a nearby delivery and buying a deferred delivery.

Bear Vertical Spread
A strategy employed when an investor expects a decline in a commodity price but at the same time seeks to limit the potential loss if this expectation is not realized. This spread requires the simultaneous purchase and sale of options of the same class and expiration date but with different strike prices. For example, if call options are spread, the purchased option must have a higher exercise price than the option that is sold.

Beta
A measure of the variability of rate of return or value of a stock portfolio compared to that of the overall market.

Bid
An expression indicating a desire to buy a commodity at a given price; the opposite of Offer.

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

Block Order
A futures or option order placed at the same time for more than one account.

Board Order
Also known as a Market-if-Touched (MIT) Order. An order that becomes a market order when a particular price is reached. A sell MIT is placed above the market; a buy MIT is placed below the market.

Board of Trade
See Contract Market.

Board of Trade Clearing Corporation (BOTCC)
An independent corporation that settles all trades made at the Chicago Board of Trade. The BOTCC acts 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 a Clearing Corporation. See also Clearing House.

Boiler Room
A enterprise which often is operated out of inexpensive, low-rent quarters (hence the term “boiler room”) that uses high-pressure sales tactics (generally over the telephone) and possibly false or misleading information to solicit generally unsophisticated investors.

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).

Booking the Basis
A forward pricing sales arrangement in which the cash price is determined either by the buyer or the seller within a specified time. At that time, the previously agreed basis is applied to the then-current futures quotation.

Box Transaction
An option position in which the holder establishes a long call and a short put at one strike price and a short call and a long put at another strike price, all of which are in the same contract month in the same commodity.

Branch Office
Any location, other than the main business address of a registrant, at which the registrant employs persons engaged in activities requiring registration as an associated person.

Branch Office Manager
The person at a branch office designated to supervise the activities of that office.

Break
A rapid and sharp price decline.

Break Even Point
The trading profit that a commodity pool must realize in the first year of a participant’s investment to equal all fees and expenses such that such participant will recoup its initial investment.

Brief
A written document that outlines a party’s legal arguments in a case.

Broker
A person paid a fee or commission for acting as an agent in making contracts, sales or purchases. In futures trading, the term may refer to (1) a floor broker–a person who actually executes orders on the trading floor of an exchange; or (2) an account executive or associated person–the person who deals with customers in the offices of a futures commission merchant or introducing broker; or (3) a futures commission merchant or introducing broker.

Broker Association
Two or more exchange members who (1) share responsibility for executing customer orders; (2) have access to each other’s unfilled customer orders as a result of common employment or other types of relationships; or (3) share profits or losses associated with their brokerage or trading activity.

Broker-Dealer
Firms that act as securities dealers or brokers, or perform both functions. A broker is an individual or firm who acts as an intermediary between a buyer and seller, usually charging a commission. A dealer is any person or company in the business of buying and selling securities for his or her own account, through a broker or otherwise.

Brokerage Fee
Also known as a Commission Fee. A fee charged by a broker for executing a transaction.

Brokerage House
Also known as a Futures Commission Merchant. 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 House.

Bucket Shop
A brokerage enterprise which “books” (i.e., takes the opposite side of) a customer’s order without actually having it executed on an exchange.

Bucketing
Directly or indirectly taking the opposite side of a customer’s order into the broker’s own account or into an account in which the broker has an interest, without open and competitive execution of the order on an exchange.

Bull
One who expects a rise in prices. The opposite of Bear. A news item is considered bullish if it expected to raise prices.

Bull Market
A market in which prices are rising.

Bull Spread
The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a rise in prices but at the same time limiting the potential loss if this expectation is wrong. In agricultural commodities, this is accomplished by buying the nearby delivery and selling the deferred.

Bull Vertical Spread
A strategy used when an investor expects that the price of a commodity will go up but at the same time seeks to limit the potential loss should this judgment be in error. This strategy involves the simultaneous purchase and sale of options of the same class and expiration date but with different strike prices. For example, if call options are spread, the purchased option must have a lower exercise or strike price than the sold option.

Business Conduct Committee
A committee empowered by a Self-Regulatory Organization to supervise the business conduct of the organization’s members and, at some self-regulatory organizations, conduct investigations. A Business Conduct Committee may also issue formal Complaints, review settlement offers, conduct hearings and issue decisions.

Butterfly Spread
A three-legged spread in futures or options. In the option spread, the options have the same expiration date but differ in strike prices. For example, a butterfly spread in soybean call options might consist of two short calls at a $6.00 strike price, one long call at a $6.50 strike price, and one long call at a $5.50 strike price.

Buy on Close
To buy at the end of the trading session within the closing price range.

Buy on Opening
To buy at the beginning of a trading session within the open price range.

Buyer
A market participant who takes a long futures position or buys an option. An option buyer is also called a Taker, Holder or Owner.

Buyer’s Market
A condition of the market in which there is an abundance of goods available and hence buyers can afford to be selective and may be able to buy at less than the price that previously prevailed.

Buying Hedge
Hedging transaction in which futures contracts are bought to protect against possible increases in the cost of commodities. See also Long Hedge.

C

CACE
Citrus Associates of the Cotton Exchange

CBOT
Chicago Board of Trade.

CEI
Commodity Exchange, Inc. (also known as COMEX).

CFFE
Cantor Financial Futures Exchange

CFTC
See Commodity Futures Trading Commission.

CFTC Administrative Action
An action taken by the Commodity Futures Trading Commission to enforce the provisions of the Commodity Exchange Act and Regulations.

CFTC Injunctive Action
An action brought by the Commodity Futures Trading Commission in federal court to obtain an order requiring a party to refrain from doing or continuing to do a particular act or activity.

CME
Chicago Mercantile Exchange.

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

COMEX
Commodity Exchange, Inc. (also known as CEI).

CPO
See Commodity Pool Operator.

CSCE
Coffee, Sugar & Cocoa Exchange, Inc.

CTA
See Commodity Trading Advisor.

Cabinet Trade
A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick.

Calendar Spread
See Horizontal Spread.

Call Option
The buyer of a call option acquires the right, but not the obligation, to purchase a particular futures contract at a stated price on or before a particular date.

Call Rule
An exchange regulation under which an official bid price for a cash commodity is competitively established at the close of each day’s trading. It holds until the next opening of the exchange.

Capital Gain
The profit made from the sale of a capital asset, such as real estate, a house, jewelry or stocks and bonds.

Capping
Effecting commodity or security transactions shortly prior to an option’s expiration date; depressing or preventing a rise in the price of the commodity or security so that previously written call options will expire worthless and the premium the writer received will be protected.

Carrying Broker
A member of a futures exchange, usually a clearinghouse member, through whom another broker or customer chooses to clear all or some trades.

Carrying Charge
The cost of storing a physical commodity, such as grain or metals, over a period of time. Includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument.

Carryover
Grain and oilseed commodities not consumed during the marketing year and remaining in storage at year’s end. These surpluses are “carried over” into the next marketing year and added to the quantities produced during that crop year.

Cash Commodity
The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also known as Actuals.

Cash Contract
A sales agreement for either immediate or future delivery of the actual product.

Cash Forward Sale
A cash transaction common in many industries, including commodity merchandising, in which a commercial buyer and seller agree upon delivery of a specified quality and quantity of goods at a specified future date. A price may be agreed upon in advance, or there may be agreement that the price will be determined at the time of delivery.

Cash Market
A place where people buy and sell the actual commodities. Also known as Forward Cash Contract. See also Spot Market.

Cash Price
The price in the marketplace for actual cash or spot commodities to be delivered via customary market channels.

Cash Settlement
A method of settling certain futures or options contracts whereby the seller pays the buyer the cash value of the commodity traded according to a procedure specified in the contract.

Charting
The use of graphs and charts in the technical analysis of futures markets to plot price movements, volume, open interest or other statistical indicators of price movement. See also Technical Analysis.

Cheapest to Deliver
Usually refers to the selection of bonds deliverable against an expiring bond futures contract.

Chooser Option
An option which is transacted in the present but which at some prespecified future date is chosen to be either a put or call option.

Churning
Excessive trading that results in the broker deriving a profit from commissions while disregarding the best interests of the customers.

Circuit Breaker
A system of trading halts and price limits on equities and derivatives markets designed to provide a cooling-off period during large, intraday market declines.

Civil Action
An action maintained to protect a private, civil right, or to compel a civil remedy, as distinguished from a criminal prosecution.

Civil Monetary Penalty
Fines imposed by the Commodity Futures Trading Commission as a sanction for wrongdoing.

Claim
A demand for money or other relief.

Claimant
A party who asserts a right to money or property.

Clearing
The procedure through which the clearing house or association becomes the buyer to each seller of a futures contract, and the seller to each buyer, and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.

Clearing House
An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reporting trade data.

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 also Customer Margin.

Clearing Member
A member of an exchange clearing house. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

Clearing Procedures Action Type
A violation arising from the failure to abide by clearing procedures.

Close
The period at the end of the trading session, officially designated by the exchange, during which all transactions are considered made “at the close.”

Closing Price
The price (or price range) recorded during trading that takes place in the final moments of a day’s activity that is officially designated as the “close.”

Closing Range
A high and low range of prices at which futures transactions took place during the close of the market.

Co Respondent
Other individuals or firms named in the disciplinary, reparation or arbitration action are referred to as co-respondents in the action.

Commission
A fee charged by a broker to a customer for performance of a specific duty, such as the buying or selling of futures contracts.

Commission House
See Futures Commission Merchant.

Commitments
See Open Interest.

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

Commodity Credit Corporation
A government-owned corporation established in 1933 to assist American agriculture. Major operations include price support programs, foreign sales and export credit programs for agricultural commodities.

Commodity Exchange Act
The federal act that provides for federal regulation of futures trading.

Commodity Exchange Authority
A regulatory agency of the U.S. Department of Agriculture established to administer the Commodity Exchange Act prior to 1975; the predecessor of the Commodity Futures Trading Commission.

Commodity Futures Trading Commission (CFTC)
The 1974-established federal regulatory agency that administers the Commodity Exchange Act. The federal oversight agency which monitors the futures and options on futures markets to detect and prevent price distortion and market manipulation and to protect the rights of customers who use the markets for either commercial or investment purposes.

Commodity Option
See Option Contract, Put Option and Call Option.

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

Commodity Pool Operator (CPO)
An individual or organization which operates or solicits funds for a pool, that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. Generally required to be registered with the Commodity Futures Trading Commission.

Commodity Trading Advisor (CTA)
An individual or organization that, for compensation or profit, directly or indirectly advises others as to the value of or the advisability of buying or selling futures or options contracts. Providing advice indirectly includes exercising trading authority over a customer’s account. Registration with the Commodity Futures Trading Commission is generally required.

Compensatory Damages
An amount intended to cover actual losses.

Complaint
Formal, written charges brought by a regulatory or self-regulatory organization which set forth the rules or requirements alleged to have been violated and describe each act or omission that constituted the alleged violations. Also, the initial document filed in a court to initiate a civil action.

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 the time of execution to the nearest minute.

Confirmation Statement
A statement sent by a futures commission merchant to a customer when a futures or options position has been initiated. The statement shows the number of contracts bought or sold and the prices at which the contracts were bought or sold. Sometimes combined with a purchase and sale statement.

Congestion
(1) A market situation in which shorts attempting to cover their positions are unable to find an adequate supply of contracts provided by longs willing to liquidate or by new sellers willing to enter the market, except at sharply higher prices; (2) in technical analysis, a period of time characterized by repetitious and limited price fluctuations.

Consent Order
Generally, any order to which all parties agree.

Contango
A market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery months; opposite of Backwardation.

Contract
A term of reference describing a unit of trading for a commodity future or option.

Contract Grades
Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.

Contract Market
A board of trade designated by the Commodity Futures Trading Commission to trade futures or option contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded.

Contract Month
The month in which delivery is to be made in accordance with a futures contract.

Contract Unit
The actual amount of a commodity represented in a contract.

Contributor
The Commodity Futures Trading Commission, National Futures Association and any U.S. futures exchange which includes its disciplinary actions in NFA’s BASIC system.

Controlled Account
Any account for which trading is directed by someone other than the owner. Also called a Managed Account or a Discretionary Account.

Convergence
The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month.

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 eight percent deliverable grade of a futures contract as well as taking into account the cash instrument’s maturity or call.

Corner
(1) Securing such relative control of a commodity or security that its price can be manipulated; (2) in the extreme situation, obtaining contracts requiring the delivery of more commodities or securities than are available for delivery.

Cost of Carry
See Carrying Charge.

Counterclaim
A claim by a respondent against a claimant.

Cover
(1) Purchasing futures to offset a short position. Same as Short Covering. See Offset or Liquidate; (2) to have in hand the physical commodity when a short futures or leverage sale is made, or to acquire the commodity that might be deliverable on a short sale.

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

Creditor
A person who is owed money by others.

Crop Year
The time period from one harvest to the next, varying according to the commodity (i.e., July 1 to June 30 for wheat; September 1 to August 31 for soybeans).

Cross Claim
A claim filed by one respondent against a co-respondent.

Cross Hedge
Hedging a cash market position in a futures contract for a different, but price-related commodity.

Cross Margining
A procedure for margining related securities, options and futures contracts jointly when different clearing houses clear each side of the position.

Cross Trading
Offsetting or noncompetitive matching of the buy order of one customer against the sell order of another customer, a practice that is permissible only when executed in accordance with the Commodity Exchange Act, CFTC regulations and the rules of the contract market.

Crush Spread
In the soybean futures market, the simultaneous purchase of soybean futures and the sale of soybean meal and soybean oil futures to establish a processing margin. See Gross Processing Margin.

Curb Trading
Trading by telephone or 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.

Current Assets
Cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold during the next 12 months.

Current Delivery Month
The futures contract which matures and becomes deliverable during the present month. Also called Spot Month.

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. See also Clearing Margin.

Customer Segregated Accounts
A special account used to hold and separate customers’ assets from those of the brokerage house or firm.

D

Daily Price Limit
The maximum price advance or decline from the previous day’s settlement price permitted during one trading session, as fixed by the rules of an exchange.

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

Day Order
An order that if not executed expires automatically at the end of the trading session on the day it was entered.

Day Trader
A speculator who will normally initiate and offset a position within a single trading session.

Day Trading
Establishing and offsetting the same futures market position within one day.

Dealer Option
A put or call on a physical commodity, not originating on or subject to the rules of an exchange, in which the obligation for performance rests with the writer of the option. Dealer options are normally written by firms handling the underlying commodity and offered to public customers, although the reverse may also be true.

Decision
A formal, written judgment or verdict.

Deck
The orders for purchase or sale of futures or option contracts held by a floor broker.

Decorum and Attire Action Type
A violation arising from an individual’s demeanor or attire on an exchange floor.

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

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

Deferred Futures
The futures contracts that expire during the most distant months. Also called Back Months. See also Forward Purchase or Sale.

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.

Deliverable Stocks
Stocks of commodities located in exchange-approved storage, for which receipts may be used in making delivery on futures contracts. In the cotton trade, the term refers to cotton certified for delivery.

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

Delivery Date
The date on which the commodity or instrument of delivery must be delivered to fulfill the terms of a contract.

Delivery Instrument
A document used to effect delivery on a futures contract, such as a warehouse receipt or shipping certificate.

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

Delivery Notice
The written notice given by the seller of his intention to make a delivery against an open short futures position on a particular date. This notice, delivered through the clearing house, is separate and distinct from the warehouse receipt or other instrument that will be used to transfer title.

Delivery Option
A provision of a futures contract which provides the short with flexibility in regard to timing, location, quantity, or quality in the delivery process.

Delivery Points
Those locations designated by commodity exchanges where stocks of a commodity represented by a futures contract may be delivered in fulfillment of the contract.

Delivery Price
The price fixed by the clearing house at which deliveries on futures are invoiced, generally the price at which the futures contract is settled when deliveries are made.

Delta
A measure of how much an option premium changes, given a unit change in the underlying futures price. Delta often is interpreted as the probability that the option will be in-the-money by expiration.

Delta Margining
An option margining system used by some exchanges for exchange members and/or floor traders which equates the changes in option premiums with the changes in the price of the underlying futures contract or physical commodity.

Delta Value
The expected change in an option’s price given a one-unit change in the price of the underlying futures contract.

Demand
A claim filed by a claimant against a respondent on the form provided by NFA.

Deposit
The initial outlay required by a broker of a client to open a futures position, returnable upon liquidation of that position.

Deposition
The pre-trial testimony of a witness given out of court with no judge present. The witness is placed under oath to tell the truth and lawyers for each party may ask questions.

Derivative
A financial instrument, traded on or off an exchange, the price of which is directly dependent upon the value of one or more of the underlying securities, commodities, other derivative instruments, or any agreed-upon pricing index or arrangement.

Designated Self Regulatory Organization (DSRO)
When a futures commission merchant (FCM) is a member of more than one Self-Regulatory Organization (SRO), the SROs may decide among themselves which of them will be primarily responsible for enforcing minimum financial and sales practice requirements. With approval, the SRO will be appointed DSRO for the particular FCM.

Diagonal Spread
A spread between two call options or two put options with different strike prices and different expiration dates.

Differentials
This discount (premium) allowed for grades or locations of a commodity lower (higher) than the par of basis grade or location specified in the futures contract. See also Allowances.

Directly Crossing Orders
A trader acts as both a buyer and seller for orders on a matched transaction.

Directly Taking the Other Side
A trader buys and sells his own orders to each other; trading with himself on behalf of others.

Disclosure Document
The document that must be provided to and signed by prospective customers of CPOs and CTAs that describes fees, performance, etc.

Discount
(1) The amount a price would be reduced to purchase a commodity of lesser grade;

(2) sometimes used to refer to the price difference between futures of different delivery months, as in the phrase “July is trading at a discount to May”, indicating that the price of the July futures contract is lower than that of May;
(3) applied to cash grain prices that are below the futures price. See also Option Premium.

Discount Basis
Method of quoting securities where the price is expressed as an annualized discount from maturity value.

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 in loans by the Federal Reserve Bank.

Discretionary Account
An arrangement by which the owner of the account gives written power of attorney to someone else, usually the broker or a commodity trading advisor, to buy and sell without prior approval of the account owner. Often referred to as a Managed Account.

Dismiss
In a legal context, to terminate a case without a complete trial.

Dismissal
In a legal context, the removal of a case out of the court; the termination of a case without a complete trial.

Dismissal With Prejudice
Usually considered an adjudication upon the merits and will operate as a bar to future action.

Dismissal Without Prejudice
Usually an indication that the dismissal affects no right or remedy of the parties (i.e., is not on the merits and does not bar a subsequent suit on the same cause of action).

Double Hedging
As used by the CFTC, it implies a situation where a trader holds a long position in the futures market in an excess of the speculative limit as an offset to a fixed price sale even though the trader has an ample supply of the commodity on hand to fill all sales commitments.

Dual Trading
Dual trading occurs when (1) a floor broker executes customer orders and, on the same day, trades for his own account or an account in which he has an interest.; or

E

Efficient Market
A market in which new information is immediately available to all investors and potential investors. A market in which all information is instantaneously assimilated and therefore has no distortions.

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

Electronic Trading System
Systems that allow participating exchanges to list their products for trading after the close of the exchange’s open outcry trading hours (i.e., Chicago Board of Trade’s Project A, Chicago Mercantile Exchange’s GLOBEX and New York Mercantile Exchange’s ACCESS.)

Elliot Wave Theory
(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; or (2) in technical analysis, a charting method based on the belief that all prices act as wavers, rising and falling rhythmically.

Enjoin
To command or instruct with authority; to abate, suspend or restrain. For example, one may be “enjoined” or commanded by a court with equitable powers, either to do a specific act or to refrain from doing a certain act.

Equity
The dollar value of a futures trading account if all open positions were offset at the going market price.

Escrow Account
A special account in which a lawyer or escrow agent deposits money or documents that do not belong to him or his firm.

Estoppel
A bar which precludes someone from denying the truth of a fact which has been determined in an official proceeding or by an authoritative body.

Eurodollar
U.S. dollar deposits placed with banks outside the U.S. Holders may include individuals, companies, banks and central banks.

European Currency Unit
The official unit of account of the European Monetary System. It is a combination or basket of the currencies from the 12 European Community countries: the Deutsche mark, French franc, British pound sterling, Irish pound, Italian lira, Belgian franc, Dutch guilder, Luxembourg franc, Greek drachma, Spanish peseta, Potuguese escudo and the Danish krona.

Even Lot
A unit of trading in a commodity established by an exchange to which official price quotations apply.

Ex Parte
A Latin term that means “by or for one party.” Refers to situations in which only one party (and not the adversary) appears before an adjudicating body. Such meetings are often forbidden.

Ex Pit Transaction
A transaction in which the buyer of a cash commodity transfers to the seller a corresponding amount of long futures contracts, or receives from the seller a corresponding amount of short futures, at a price difference mutually agreed upon. In this way, the opposite hedges in futures of both parties are closed out simultaneously. Also called Exchange for Physicals, Against Actuals or Exchange of Futures for Cash.

Exchange
See Contract Market.

Exchange Rate
The price of one currency stated in terms of another currency.

Exchange Risk Factor
The delta value of an option as computed daily by the exchange on which it is traded.

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.

Exchange of Futures for Cash
A transaction in which the buyer of a cash commodity transfers to the seller a corresponding amount of long futures contracts, or receives from the seller a corresponding amount of short futures, at a price difference mutually agreed upon. In this way, the opposite hedges in futures of both parties are closed out simultaneously. Also called Exchange for Physicals, Against Actuals or Ex-Pit Transactions.

Exempt Foreign Firm
Foreign firm that does business with U.S. customers only on foreign exchanges and is exempt from registration under CFTC regulations.

Exercise
Exercising a call means that you elect to purchase the underlying futures contract at the option strike price. Exercising a put means that you elect to sell the underlying futures contract at the option strike price.

Exercise Price
The price specified in the option contract at which the buyer of a call can purchase the commodity during the life of the option, and the price specified in the option contract at which the buyer of a put can sell the commodity during the life of the option.

Expiration Date
Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts.

Extrinsic Value
See Time Value.

F

FCM
See Futures Commission Merchant.

FOB
Free on Board. Indicates that all delivery, inspection and elevation or loading costs involved in putting commodities on board a carrier have been paid.

FT
See Floor Trader.

Feed Ratio
The relationship of the cost of feed, expressed as a ratio to the sale price of animals, such as the corn-hog ratio. These serve as indicators of the profit margin or lack of profit in feeding animals to market weight.

Felony
Serious crime punishable by incarceration for a year or more. Includes offenses such as rape, murder, robbery, burglary and arson.

Fictitious Trading
Wash trading, bucketing, cross trading, or other schemes which give the appearance of trading. Actually, no bona fide, competitive trade has occurred.

Fiduciary Duty
An obligation to act solely in the best interest of another party. For instance, a corporation’s board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust’s beneficiaries, and an attorney has a fiduciary duty to a client.

Fill or Kill Order
A customer order which demands immediate execution or cancellation.

Final Decision
A decision of a regulatory organization which cannot be further appealed within the regulatory organization, is not subject to a stay and has not been reversed.

Final Injunction
An order of the court requiring a party to do something or refrain from doing or continuing to do a particular act or activity.

Final Order
In a registration disqualification proceeding, a Final Order is issued upon resolution of the matter. A Final Order will condition or deny an applicant’s registration; or revoke, restrict or suspend a registrant’s registration.

Financial Action Type
A violation arising from failure to meet financial requirements.

Financial Instrument
As used by the CFTC, this term generally refers to any futures or option contract that is not based on an agricultural commodity or a natural resource. It includes currencies, securities, mortgages, commercial paper and stock indexes of various kinds.

Financial and Position Reporting Action Type
A violation arising from failure to meet financial reporting requirements or contract position reporting requirements.

First Notice Day
The first day on which the notice of intent to deliver a commodity in fulfillment of an expiring futures contract can be given by the clearing house to a buyer. Varies from contract to contract.

Fix or Fixing
The settling of the gold price at 10:30 a.m. (first fixing) and 3:00 p.m. (second fixing) in London by five representatives of the London Gold Market.

Fixed Income Security
A security whose nominal (or current dollar) yield is fixed or determined with certainty at the time of purchase.

Floor Broker (FB)
An individual who executes orders on the trading floor of an exchange for any other person.

Floor Committee
A committee empowered by an exchange for the purposes of resolving disputes and supervising the conduct and practices of members and others on the floor of an exchange. The committee may also conduct investigations, hearings and impose fines and other sanctions.

Floor Recordkeeping Action Type
A violation arising from failure to make or preserve any record required to be made on the floor of an exchange in connection with the disposition of an order or the execution of a trade.

Floor Trader (FT)
Members of an exchange who are personally present, on the trading floors of exchanges, to make trades for themselves. Sometimes called Locals.

Forced Liquidation
The situation in which a customer’s account is liquidated (open positions are offset) by the brokerage firm holding the account, usually after notification that the account is undercapitalized (margin calls).

Foreign Exchange Foreign currency.
On the foreign exchange market, foreign currency is bought and sold for immediate or future delivery.

Foreign Exchange Market Forex market.
An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication.

Foreign Futures or Foreign Options Secured Amount
The amount of money, securities and property that an FCM must maintain in a separate account to cover or satisfy all of its current obligations to foreign futures or foreign options customers. Such money, securities or property may not be commingled with the money, securities and property of the FCM.

Foreign Terminal
Computer terminals placed in the United States by foreign boards of trade. These terminals are used for the purpose of facilitating the trading of products available through those boards of trade.

Forward Contract
A contract on which a seller agrees to deliver a specified cash commodity to a buyer sometime in the future. In contrast to futures contracts, the terms of forward contracts are not standardized. Forward contracts are not traded on federally designated exchanges.

Forward Market
Refers to informal (non-exchange) trading of commodities to be delivered at a future date. Contracts for forward delivery are personalized (i.e., delivery time and amount are as determined between seller and customer).

Forward Purchase or Sale
A purchase or sale between commercial parties of an actual commodity for deferred delivery.

Forwardation
See Contango.

Frontrunning
A process whereby a futures or options position is taken based on non-public information about an impending transaction in the same or related futures or options contracts.

Full Carrying Charge, Full Carry
See Carrying Charge.

Fully Disclosed Account
An account carried by a futures commission merchant in the name of the individual customer; the opposite of an Omnibus Account.

Fund of Funds
A commodity pool that invests in other commodity pools rather than directly in futures and options contracts.

Fundamental Analysis
The study of basic, underlying factors which will affect the supply and demand and hence the price of a futures contract.

Futures Commission Merchant (FCM)
An individual or organization which solicits or accepts orders to buy or sell futures or options contracts and accepts money or other assets from customers in connection with such orders. Must be registered with the Commodity Futures Trading Commission.

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

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

Futures Industry Association (FIA)
The national trade association for futures commission merchants.

Futures Price
(1) Commonly held to mean the price of a commodity for future delivery that is traded on a futures exchange; or (2) the price of any futures contract.

G

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

General Conduct Action Type
A violation arising from conduct not described by any other action type violation.

Ginzy Trading
A trade practice in which a floor broker, in executing an order, particularly a large order, will fill a portion of the order at one price and the remainder of the order at another price to avoid an exchange’s rule against trading at fractional increments or split ticks.

Give Up
A contract executed by one broker for the client of another broker that the client orders to be turned over to the second broker. The broker accepting the order from the customer collects a wire toll from the carrying broker for the use of the facilities. Often used to consolidate many small orders or to disperse large ones.

Gold Silver Ratio
The number of ounces of silver required to buy one ounce of gold at current spot prices.

Good This Week Order
Order which is valid only for the week in which it is placed.

Good Til Canceled Order
Order which is valid at any time during market hours until executed or canceled.

Grades
Various qualities of a commodity.

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

Grantor
A person who sells an option and assumes the obligation, but not the right, to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price.

Gross Processing Margin
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.

Guaranteed Introducing Broker
An introducing broker whose operations are guaranteed by an FCM. This type of IB has no minimum capital or financial reporting requirements. All of the accounts of a guaranteed introducing broker must be carried by the guaranteeing FCM. See also Independent Introducing Broker.

Guarantor
A secondary party who becomes obligated to repay a debt for the party primarily responsible who has failed to repay an obligation. A guarantor of an introducing broker is a futures commission merchant that is subject to discipline under NFA rules for violations committed by the introducing broker.

H

Haircut
(1) In determining whether assets meet capital requirements, a percentage reduction in the stated value of assets; (2) in computing the worth of assets deposited as collateral or margin, a reduction from market value.

Hand Held Terminal
A small computer terminal used by floor brokers or traders on a board of trade to record trade information and transmit that information to the clearing organization.

Hearing
A proceeding wherein evidence is taken for the purpose of determining an issue of fact and reaching a decision on the basis of that evidence. An Administrative Hearing may take place outside the judicial process, before officials who have been granted judicial authority expressly for the purpose of conducting such hearings.

Hearing Committee
A committee empowered by a self-regulatory organization to review settlement offers, conduct hearings and issue decisions.

Hedge Ratio
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.

Hedger
An individual or company owning or planning to own, or selling or planning to sell, a cash commodity and is 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.

Hedging
The practice of offsetting the price inherent in any cash market position by taking the opposite position in the futures market. Hedgers use the market to protect their businesses from adverse price changes.

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

Hog Corn Ratio
See Feed Ratio.

Holder
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.

Hypothetical Disclaimer
Results of trading that was not actually executed in any account. For example, results of proposed trades generated by a trading system but not actually entered for execution.

I

IB
See Introducing Broker.

Immunity
Exemption from a legal duty, penalty or prosecution.

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

Independent Introducing Broker
An introducing broker that is subject to minimum capital and financial reporting requirements. This type of IB may introduce accounts to any FCM. See also Guaranteed Introducing Broker.

Index Arbitrage
The simultaneous purchase (sale) of stock index futures and the sale (purchase) of some or all of the component stocks which make up the particular stock index to profit from sufficiently large intermarket spreads between the futures contract and the index itself.

Indictment
A formal accusation of a felony, issued by a grand jury after considering evidence presented by a prosecutor.

Indirectly Crossing Orders
A trader executes buy and sell orders opposite the same trader at the same price.

Indirectly Taking the Other Side
A trader executes a customer order on one side of the market opposite a local and executes a trade for his personal account on the opposite side of the market with the same local at the same time.

Inelasticity
A characteristic that describes the interdependence of the supply, demand and price of a commodity. A commodity is inelastic when a price change does not create an increase or decrease in consumption; inelasticity exists when supply and demand are relatively unresponsive to changes in price.

Initial Decision
A decision setting forth findings of fact and conclusions of law and the imposition of a penalty. An Initial Decision becomes a Final Decision within a specified time period unless it is appealed or stayed.

Initial Deposit
See Intitial Margin.

Initial Determination
A formal, written document stating whether it is determined, based on the written record as a whole, that a registrant is disqualified from registration under the Commodity Exchange Act. Following the issuance of an Initial Determination, the registrant may request an oral hearing.

Initial Margin
Customers’ funds put up at the time a futures market position is established to act as security for a guarantee of contract fulfillment. See also Original Margin.

Initial Performance Bond
The funds required when a futures position (or a short options on futures position) is opened.

Injunction
A prohibitive, equitable order, either permanent or temporary, issued by a court forbidding a person to commit some action that he is attempting to commit, or restraining him in the continuance of some action.

Intercommodity Spread
A spread in which the long and short legs are in two different but generally related commodity markets. Also called an Intermarket Spread.

Interdelivery Spread
A spread involving two different months of the same commodity. Also called an Intracommodity Spread.

Interest Rate Futures
Futures contracts traded on fixed income securities such as U.S. Treasury issues, or CDs. Currencies are excluded from this category, even though interest rates are a factor in currency values.

Interim Order
A formal, written document stating that it is determined that a registrant is disqualified from CFTC registration under the Commodity Exchange Act. The issuance of an Interim Order suspends the registrant’s registration and orders the registrant to show cause why his registration should not be revoked.

Intermarket Spread
See Spread and Intercommodity Spread.

International Commodities Clearinghouse
An independent organization that serves as a clearinghouse for most futures markets in London, Bermuda, Singapore, Australia, and New Zealand.

International Swaps and Derivatives Association
A New York-based group of major international swaps dealers, which has published the Code of Standard Wording, Assumptions and Provisions for Swaps, or Swaps Code, for U.S. dollar interest rate swaps, as well as standard master interest rate and currency swap agreements and definitions for use in connection with the creation and trading of swaps.

Intracommodity Spread
See Interdelivery Spread.

Intrinsic Value
The absolute value of the in-the-money amount; that is, the amount that would be realized if an in-the-money option were exercised.

Introducing Broker (IB)
A firm or individual that solicits and accepts futures orders from customers but does not accept money, securities or property from the customer. An IB must be registered with the Commodity Futures Trading Commission and must carry all of its accounts through a futures commission merchant on a fully disclosed basis.

Inverted Market
A futures market in which the nearer months are selling at premiums over the more distant months; characteristically, a market in which supplies are currently in shortage.

Invisible Supply
Uncounted stocks of a commodity in the hands of wholesalers, manufacturers and producers which cannot be identified accurately; stocks outside commercial channels but theoretically available to the market.

J

Joint and Several Liability
Generally refers to the responsibility of multiple persons to pay a judgment or fine. When persons are jointly and severally liable to make payment, the person who is entitled to receive the payment (the creditor) may collect the entire amount from one or more of the responsible persons separately or from all responsible persons collectively, at the creditor’s option. The amounts paid by any responsible person to the creditor reduce the amount for which the others remain responsible to pay the creditor.

K

KCBOT
Kansas City Board of Trade

KCBT
Kansas City Board of Trade

L

Lagging Indicators
Market indicators showing the general direction of the economy and confirming or denying the trend implied by the leading indicators. Also referred to as Concurrent Indicators.

Large Traders
A large trader is one who holds or controls a position in any one future or in any one option expiration series of a commodity on any one contract market equaling or exceeding the exchange or CFTC-specified reporting level.

Last Notice Day
The final day on which notices of intent to deliver on futures contracts may be issued.

Last Trading Day
The last day on which trading may occur in a given futures or options contract.

Leading Indicators
Market indicators that signal the state of the economy for the coming months. 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, changes in manufacturers’ unfilled orders for durable goods, plant and equipment orders, new building permits, index of consumer expectations, change in material prices, prices of stocks and change in money supply.

Leaps
Long-dated, exchange-traded options.

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

Licensed Warehouse
A warehouse approved by exchange from which a commodity may be delivered on a futures contract.

Life of Contract
Period between the beginning of trading in a particular futures contract and the expiration of trading. In some cases this phrase denotes the period already passed in which trading has already occurred.

Limit Down
The maximum price advance from the previous day’s settlement price permitted during one trading session, as fixed by the rules of an exchange. See also Daily Price Limit.

Limit Move
A price that has advanced or declined the limit permitted during one trading session as fixed by the rules of a contract market.

Limit Only
The definite price stated by a customer to a broker restricting the execution of an order to buy for not more than, or to sell for not less than, the stated price.

Limit Order
An order in which the customer specifies a price limit or other condition, such as the time of an order, as contrasted with a market order which implies that the order should be filled as soon as possible.

Limit Price
See Limit Move.

Limit Up
The maximum price decline from the previous day’s settlement price permitted during one trading session, as fixed by the rules of an exchange. See also Daily Price Limit.

Limited Partnership
A partnership with two kinds of partners: limited partners, who provide financial backing and have little role in management and no personal liability; and general partners, who are responsible for managing the entity and have unlimited personal liability for its debts.

Liquidate
To sell (or purchase) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or make (or take) delivery of the cash commodity represented by the futures contract.

Liquidity
A broadly traded market where buying and selling can be accomplished with small price changes and bid and offer price spreads are narrow.

Local
A member of an exchange who trades for his own account. See Floor Trader.

Locked In
A hedged position that cannot be lifted without offsetting both sides of the hedge (spread). Also refers to being caught in a limit move.

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

Long Hedge
Buying futures contracts to protect against possible increasing prices of commodities. Opposite of Short Hedge.

Long the Basis
A person or firm is said to be long the basis if they have bought the spot commodity and hedged with a sale of futures.

Lookback Option
An option whose payoff depends on the minimum or maximum price of the underlying asset during some portion of the life of the option.

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

M

MACE
MidAmerica Commodity Exchange

MGE
Minneapolis Grain Exchange

MIDAM
MidAmerica Commodity Exchange.

MIT
See Market-If-Touched.

MRA
See Member Responsibility Action.

Maintenance Margin
A set minimum margin (per outstanding futures contract) that a customer must maintain.

Maintenance Performance Bond
A sum, usually smaller than, but part of, the initial performance bond, which must be maintained on deposit in the customer’s account at all times. If a customer’s equity in any futures position drops to, or under, the maintenance performance bond level, a “performance bond call” is issued for the amount of money required to restore the customer’s equity in the account to the initial margin level.

Managed Account
See Discretionary Account.

Managed Funds Association
The trade association for the managed funds industry.

Managed Futures
Represents an industry comprised of professional money managers who manage client assets on a discretionary basis, using global futures markets as an investment medium.

Margin
An amount of money deposited by both buyers and sellers of futures contracts and by sellers of option contracts to ensure performance of the terms of the contract (the making or taking delivery of the commodity or the cancellation of the position by a subsequent offsetting trade). Margin in futures is not a down payment, as in securities, but rather a performance bond.

Margin Call
A call from a clearing house to a clearing member or from a broker or firm to a customer, to bring margin deposits up to a required minimum level.

Mark to Market
To debit or credit on a daily basis a margin account based on the close of that day’s trading session.

Market Correction
In technical analysis, a small reversal in prices following a significant trending period.

Market If Touched (MIT)
An order that becomes a market order when a particular price is reached. A sell MIT is placed above the market; a buy MIT is placed below the market. Also referred to as a Board Order.

Market Maker
A professional securities dealer who has an obligation to buy when there is an excess of sell orders and to sell when there is an excess of buy orders. By maintaining an offering price sufficiently higher than their buying price, these firms are compensated for the risk involved in allowing their inventory of securities to act as a buffer against temporary order imbalances. In the commodities industry, this term is sometimes loosely used to refer to a floor trader or local who, in speculating for his own account, provides a market for commercial users of the market. See also Specialist System.

Market Order
An order to buy or sell a futures or options contract at whatever price is obtainable when the order reaches the trading floor.

Market Reporter
A person employed by the exchange and located in or near the trading pit who records prices as they occur during trading.

Material Fact
A fact that would be important to a reasonable person in deciding whether to engage in a particular transaction; an important fact as distinguished from some unimportant or trivial detail.

Maximum Price Fluctuation
See Limit Move.

Mediation
A method of alternative dispute resolution in which a neutral third party helps resolve a dispute. The mediator does not have the power to impose a decision on the parties. If a satisfactory resolution cannot be reached, the parties can pursue a lawsuit.

Member Responsibility Action (MRA)
An action whereby an NFA member may be summarily suspended from membership, may be required to restrict its operations, or may otherwise be directed to take remedial action when the President of NFA, with the concurrence of the Executive Committee, has reason to believe that the action is necessary to protect the commodity futures markets, customers or other members or associates of NFA. This may be a summary action.

Membership Committee
A committee empowered by a self-regulatory organization to review and make judgments on matters pertaining to membership qualification issues. At NFA, the committee that also reviews and makes judgements on matters pertaining to CFTC registration issues.

Membership Denial
A non-member is denied exchange or NFA membership; a suspended or expelled member is denied reinstatement of membership privileges; or an explicit limitation is imposed upon the membership rights of a specific exchange or NFA member or group of members.

Membership Denial Action Type
The statutory denial of exchange or NFA membership.

Minimum Price Fluctuation
Smallest increment of price movement possible in trading a given contract.

Misdemeanor
Crime that is punishable by less than one year in jail, such as minor theft and simple assault that does not result in substantial bodily injury.

Mitigating Factors
Information about a defendant or the circumstances of a crime that might tend to lessen the sentence for the crime with which the person is charged.

Money Laundering
Conduct or acts designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of money (can be currency or equivalents, e.g., checks, electronic transfers, etc.) to avoid a transaction reporting requirement under state or federal law or to disguise the fact that the money was acquired by illegal means.

Money Pass
Two traders trading for their personal accounts, execute a buy and a sell with each other at different prices, resulting in a profit for one and a loss for the other.

Motion
A request asking a judge to issue a ruling or order on a legal matter.

Motion for Summary Judgment
A request made by either party in a civil case. Asserts that the opposing party has raised no genuine issue of fact necessitating a hearing and asks the judge to rule in favor of the moving party based on the law. Typically made before the trial.

Motion to Dismiss
In a civil case, a request to a judge by the defendant, asserting that even if all the allegations are true, the plaintiff is not entitled to any legal relief and thus the case should be dismissed.

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.

N

NAV
See Net Asset Value.

NFA
See National Futures Association.

NFA Associate Member
See Associate Member

NYBT or NYBOT
New York Board of Trade

NYCE
New York Cotton Exchange

NYFE
New York Futures Exchange

NYME or NYMEX
New York Mercantile Exchange

NYMEX
New York Mercantile Exchange

Naked Call
See Naked Option.

Naked Option
The sale of a call or put option without holding an offsetting position in the underlying commodity.

Naked Put
See Naked Option.

National Futures Association (NFA)
Authorized by Congress in 1974 and designated by the CFTC in 1982 as a “registered futures association,” NFA is the industrywide self-regulatory organization of the futures industry.

National Introducing Brokers Association
The trade association for the introducing broker community.

Nearby Delivery Month
The futures contract month closest to expiration.

Negative Carry
The cost of financing a financial instrument (the short-term rate of interest), when the cost is above the current return of the financial instrument. See also Carrying Charge. Opposite of Positive Carry.

Negative Yield Curve
See Yield Curve.

Net Asset Value (NAV)
The value of each unit of participation in a commodity pool. Basically a calculation of assets minus liabilities plus or minus the value of open positions when marked to the market, divided by the number of units.

Net Capital
The amount by which Current Assets of an FCM or independent IB exceed its Liabilities.

Net Performance
An increase or decrease in net asset value exclusive of additions, withdrawals and redemptions.

Net Position
The difference between the open long contracts and the open short contracts held by a trader in any one commodity.

No-Action Floor Trader
On April 26, 1993, CFTC registration as a Floor Trader became a requirement for members of exchanges who traded for their own accounts. The CFTC agreed to take no action against these individuals for trading their accounts while their applications for registration were pending approval.

Nolo Contendere
A Latin phrase meaning, “I will not contest it.” It is a type of plea which may be entered with leave of court to a criminal complaint or indictment by which the defendant does not admit or deny the charges, though a fine or a sentence may be imposed.

Nominal Price
Computed price quotation on futures for a period in which no actual trading took place, usually an average of bid and asked prices.

Non Member Panel
A panel in which a majority of the arbitrators are not connected with an NFA Member or NFA.

Notice Day
Any day on which notices of intent to deliver on futures contracts may be issued.

Notice of Appeal
The document a person must file with the adjudicating body in order to pursue an appeal.

Notice of Intent
The first formal pleading issued which begins a registration disqualification proceeding. It states the allegations which will be proven to show that an applicant or registrant is disqualified from CFTC registration.

Notional Amount
The amount (in an interest rate swap, forward rate agreement, or other derivative instrument) or each of the amounts (in a currency swap) to which interest rates are applied (whether or not expressed as a rate or stated on a coupon basis) in order to calculate periodic payment obligations.

O

Offer
An expression indicating a desire to sell a commodity at a given price; the opposite of Bid.

Office Recordkeeping Action Type
A violation arising from failure to make or preserve required office records.

Offset
To take a second futures or options position opposite to the initial or opening position.

Omnibus Account
An account of an originating FCM carried by a clearing FCM that combines the transactions of two or more accounts of the originating FCM in the name of the originating FCM rather than designating the accounts separately. The identity of the individual accounts is not disclosed to the carrying broker.

Open Interest
The sum of all long or short futures contracts in one delivery month to one market that have been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery. Also known as Commitments.

Open Order
An order that remains in force until it is canceled or until the futures contracts expire. See also Good ‘Til Canceled Order and Good This Week Order orders.

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

Open Trade Equity
The unrealized gain or loss on open positions.

Opening (The)
The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made “at the opening.”

Opening Price (or Range)
The price (or price range) recorded during the period designated by the exchange as the official opening.

Opinion
The reason given for a decision maker’s finding or conclusion, as opposed to the decision, which is the judgment itself. The opinion is commonly contained in the Decision.

Option Buyer
The person who buys calls, puts, or any combination of calls and puts.

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

Option Grantor
The person who originates an option contract by promising to perform a certain obligation in return for the price of the option. Also known as Option Writer.

Option Premium
The price a buyer pays for an option. Premiums are arrived at through open competition between buyers and sellers on the trading floor of the exchange.

Option Seller
The person who sells an option in return for a premium and is obligated to perform if the holder exercises his right under the option contract. Also referred to as the Option Writer.

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

Option Writer
See Option Seller.

Oral Argument
An opportunity for lawyers to orally summarize their position before the court and also to answer questions from the judge(s).

Order
A direction of the adjudicating body on some matter.

Original Margin
Term applied to the initial deposit of margin money each clearing member firm is required to make according to clearing house rules based upon positions carried, determined separately for customer and proprietary positions; similar in concept to the initial margin or security deposit required of customers by exchange regulations.

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

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 value of the underlying asset.

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 communication.

Overbought A technical opinion for which the market price has risen too steeply and too fast in relation to underlying fundamental factors. Opposite of Oversold.
Overnight Trade

A trade which is not liquidated on the same trading day in which it was established.
Oversold

P

PBOT
Philadelphia Board of Trade

Par
The face value of a security.

Pardon
A remission of punishment or penalty without indicating exoneration from guilt.

Partnership
An association of two or more people who agree to share in the profits and losses of a business venture.

Party
A claimant or respondent.

Pegged Price
The price at which a commodity has been fixed by agreement.

Pegging
Effecting commodity transactions to offset a decline in the price of the commodity so that previously written put options will expire worthless, thus protecting premiums previously received.

Performance Bond
Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the exchange as a whole.

Performance Bond Call
A demand for additional funds because of an adverse price movement.

Permanent Injunction
A final order of the court requiring a party to do something, or to refrain from doing or continuing to do a particular act or activity.

Permanently Enjoin
To command or instruct with authority; to abate, suspend or restrain. For example, following a hearing, one may be “permanently enjoined” or commanded by a court with equitable powers, either to do a specific act or to refrain from doing a certain act.

Petition
A written application to a court asking for specific action to be taken.

Petition for Review
A formal written request for review by an appellate body of the proceedings of a lower court or other adjudicative body.

Petition to Stay
A formal written request for a judicial order to forbid or hold something in abeyance until some event occurs or the court lifts it order. A request to an appellate body to delay enforcement of a Decision or Final Order that is being appealed.

Pit
The area on the trading floor of some exchanges where trading in futures or options contracts is conducted by open outcry.

Pleadings
Written statements by the parties of their positions.

Point
A measure of price change equal to 1/100 of one cent in most futures traded in decimal units. In grains, it is one cent; in T-bonds, it is one percent of par. See also Tick.

Point Balance
A statement prepared by futures commission merchants to show profit or loss on all open contracts by computing them to an official closing or settlement price, usually at calendar month end.

Point and Figure Charts
A method of charting which uses prices to form patterns of movement without regard to time. It defines a price trend as a continued movement in one direction until a reversal of a predetermined criterion is met.

Pool
See Commodity Pool.

Pool Operator
See Commodity Pool Operator.

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

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 where the contract is traded.

Position Trader
A trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from a day trader.

Positive Carry
The cost of financing a financial instrument (the short-term rate of interest), when the cost is less than the current return of the financial instrument.

Positive Yield Curve
See Yield Curve.

Power of Attorney
The authority to act legally for another person.

Prearranged Trading
Trading between brokers in accordance with an expressed or implied agreement or understanding, which is a violation of the Commodity Exchange Act.

Preliminary Hearing
In criminal law, a legal proceeding in which a prosecutor presents evidence to a judge in an attempt to show that there is probable cause that a person committed a crime. If the judge is convinced probable cause exists to charge the person, then the prosecution proceeds to the next phase. If not, the charges are dropped.

Preliminary Injunction
A judicial remedy to prevent threatened injury, maintain the status quo, or preserve the subject matter of the litigation during trial.

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

Price Discovery
The process of determining the price level of a commodity based on supply and demand factors.

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

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

1. For producers, their major purchaser of commodities;
2. in commercial marketing channels, an important center at which spot commodities are concentrated for shipment to terminal markets; and
3. to processors, the market that is the major supplier of their commodity needs.

Principal
Means, with respect to an applicant, a registrant, or a person required to be registered under the Act:

1. an individual who is:
   • a proprietor of a sole proprietorship;
   • a general partner of a partnership;
   • a director, president, chief executive officer, chief operating officer, chief financial officer or a person in charge of a business unit, division or function subject to regulation by the Commission of a corporation, limited liability company or limited liability partnership; ora manager, managing member or a member vested with the management authority for a limited liability company or limited liability partnership; or
2. an individual who directly or indirectly, through agreement, holding companies, nominees, trusts or otherwise:
   • is the owner of 10% or more of the outstanding shares of any class of an applicant or registrant’s stock;
   • is entitled to vote 10% or more of any class of an applicant or registrant’s voting securities;
   • has the power to sell or direct the sale of 10% or more of any class of an applicant or registrant’s voting securities;
   • has contributed 10% or more of an applicant or registrant’s capital;
   • is entitled to receive 10% or more of an applicant or registrant’s net profits;
   • or has the power to exercise a controlling influence over an applicant or registrant’s activities that are subject to regulation by the Commission; or
3. an entity that:
   • is a general partner of a partnership;
   • is the direct owner of 10% or more of any class of an applicant or registrant’s securities; or
   • has directly contributed 10% or more of an applicant or registrant’s capital unless such capital contribution consists of subordinated debt contributed by:
     • an unaffiliated bank insured by the Federal Deposit Insurance Corporation;
     • a United States branch or agency of an unaffiliated foreign bank that is licensed under the laws of the United States and regulated, supervised and examined by United States government authorities having regulatory responsibility for such financial institutions; or
     • an insurance company subject to regulation by any State.

Pro Se
A Latin phrase that means “for himself.” A person who represents himself in a legal matter alone without the help of a lawyer is said to appear pro se.

Program Trading
The purchase (or sale) of a large number of stocks contained in or comprising a portfolio. Originally called “program” trading when index funds and other institutional investors began to embark on large-scale buying or selling campaigns or “programs” to invest in a manner which replicated a target stock index, the term now also commonly includes computer aided stock market buying or selling programs, portfolio insurance, and index arbitrage.

Project A
An electronic trading system for futures and options developed by the Chicago Board of Trade.

Promotional Material
Any text of a standardized oral presentation, or any communication for publication in any newspaper, magazine or similar medium, or for broadcast over television, radio, or other electronic medium, which is disseminated or directed to the public concerning a futures account, agreement or transaction; any standardized form of report, letter, circular, memorandum or publication which is disseminated or directed to the public; and any other written material disseminated or directed to the public for the purpose of soliciting a futures account, agreement or transaction.

Proof of Service
A court paper filed as evidence that the witness or party to the lawsuit was served with the papers.

Punitive Damages
An amount intended to punish outrageous conduct.

Purchase and Sale Statement (P&S)
A statement sent by a futures commission merchant to a customer when a futures or options position has been liquidated or offset. The statement shows the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges and the net profit or loss on the transaction. Sometimes combined with a Confirmation Statement.

Put Option
An option that gives the option buyer the right, but not the obligation, to sell the underlying futures contract at a particular price on or before a particular date.

Pyramiding
The use of unrealized profits on existing futures positions as margin to increase the size of the position, normally in successively smaller increments.

Q

Quick Order
See Fill or Kill Order.

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

R

Rally
An upward movement of prices.

Random Walk
An economic theory that price movements in the commodity futures markets and in the securities markets are completely random in character (i.e., past prices are not a reliable indicator of future prices).

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

Ratio Hedge
The number of options compared to the number of futures contracts bought or sold in order to establish a hedge that is risk neutral.

Ratio Spread
This strategy, which applies to both puts and calls, involves buying or selling options at one strike price in greater number than those bought or sold at another strike price.

Reaction
The downward price movement tendency of a commodity after a price advance.

Receiver
A person appointed by the court to receive and preserve the property or funds that are the subject of litigation.

Recovery
An upward price movement after a decline.

Registered Representative
A person employed by, and soliciting business for, a commission house or futures commission merchant. See also Associated Person.

Registrant
A person or firm who had properly applied for and received approval to operate in one or more of the following capacities: futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, leverage transaction merchant, agricultural trade option merchant, floor broker, floor trader, or associate person.

Registration Action Type
A violation arising from failing to properly register with a regulatory body or being statutorily disqualified from registration.

Regulatory Action
A disciplinary or remedial action taken by a regulatory body, such as the exchanges, NFA and the CFTC in enforcing its rules and the requirements of the Commodity Exchange Act.

Remand
When an appellate body sends a case back to a lower body for further proceedings.

Reparations
Compensation payable to a wronged party in a futures or options transaction. The term is used in conjunction with the CFTC’s customer claims procedure to recover civil damages.

Reply
A written response to a counterclaim or a cross-claim.

Reportable Position
The number of open contracts specified by the CFTC at which one must begin reporting total positions by delivery month to the authorized exchange and/or the CFTC.

Reporting Level
Sizes of positions set by the exchanges and/or the CFTC at or above which commodity traders or brokers who carry these accounts must make daily reports about the size of the position by commodity, by delivery month, and whether the position is controlled by a commercial or non-commercial trader.

Representative
An attorney or other person who assists a party in an arbitration.

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

Respondent
A person or firm named in a disciplinary or remedial action; a person or firm alleged to have been the cause of rule violations; a person or firm against whom a claim is asserted in an arbitration or reparations matter.

Response to Notice of Intent
A written response to a Notice of Intent submitted by the named applicant or registrant.

Resting Order
An order to buy at a price below or to sell at a price above the prevailing market that is being held by a floor broker. Such orders may either be day orders or open orders.

Restitution
The act of making good, or of giving the equivalent, for any loss, damage or injury.

Restraining Order
An order often granted without notice or hearing, requiring the preservation of the status quo until a hearing can be held to determine the propriety of any injunctive relief, temporary or permanent. A restraining order is always temporary in nature and thus is often called a TRO or Temporary Restraining Order.

Resumption
The reopening the following day of specific futures and options markets that also trade during the evening session.

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

Reversal
A change of direction in prices. In a legal context, when an appellate body sets aside the decision of a body because of an error. A reversal is often followed by a remand.

Reverse Conversion
With regard to options, a position created by buying a call option, selling a put option, and selling the underlying futures contract. Also referred to as Reversal.

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

Revoke
To recall a power or authority previously conferred, or annul, repeal, rescind or cancel privileges or registration. In the case of Commodity Futures Trading Commission registration proceedings, to take away a previously granted registration.

Riding the Yield Curve
Trading in interest rate futures according to the expectations of change in the yield curve.

Ring
A circular area on the trading floor of an exchange where floor traders and floor brokers stand while executing futures trades.

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

Roll-Over
The process of lifting a futures or options position and re-establishing it in a more deferred delivery month.

Round Lot
A quantity of a commodity equal in size to the corresponding futures contract for the commodity.

Round Turn
A completed futures transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

Runners
Messengers who rush orders they receive from phone clerks to floor brokers for execution in the pit or ring.

S

SPAN
The Standard Portfolio Analysis of Risk Performance (SPAN) bond system is a portfolio-based method of computing margin requirements on futures and options. SPAN has been adopted by all major U.S. exchanges, many foreign boards of trade and other participants in the futures industry.

SRO
See Self-Regulatory Organization.

Sales Practice Action Type
A violation arising from the solicitation and servicing of customer accounts, but not including trade practice or recordkeeping matters.

Satisfactorily Subordinated Liabilities
Liabilities of an FCM or IB which are subordinated to the claims of all general creditors of the FCM or independent IB pursuant to subordination agreements which meet certain standards.

Scalper
A floor 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.

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

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

Segregated Funds
The amount of money, securities and property due to commodity futures or options customers which is held in segregated accounts in compliance with Section 4d of the Commodity Exchange Act and CFTC Regulations. Such money, securities or property may not be commingled with the money, securities and property of the FCM.

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

Sell on Close
To sell at the end of the trading session within the closing range price.

Sell on Opening
To sell at the beginning of a trading session within the open price range.

Seller’s Market
A condition of the market in which there is a scarcity of goods available and hence sellers can obtain better conditions of sale or higher prices.

Seller’s Option
The right of a seller to select, within the limits prescribed by a contract, the quality of the commodity delivered and the time and place of delivery.

Selling Hedge
Selling futures contracts to protect against possible decreased prices of commodities.

Settlement
Parties resolve their differences without having a trial, commonly without any determination of the merits of the case.

Settlement Agreement
A document that spells out the terms of a resolution by the parties without an adjudication.

Settlement Price
The daily price at which the clearing house settles all accounts between clearing members for each contract month. Settlement prices are used to determine both margin calls and invoice prices for deliveries. The term also refers to a price established by the clearing organization to calculate account values and determine margins for those positions still held and not yet liquidated.

Short
One who has sold futures contracts or the cash commodity. Opposite of Long.

Short Covering
Purchasing futures to offset a short position.

Short Hedge
Selling futures contracts to protect against possible declining prices of commodities. Opposite of Long Hedge.

Short Selling
Selling a futures contract with the idea of delivering on it or offsetting it at a later date.

Short Squeeze
A market situation in which the lack of supplies tends to force shorts to cover their positions by offset at higher prices.

Short the Basis
The purchase of futures as a hedge against a commitment to sell in the cash or spot markets. Opposite of Long the Basis.

Soft
A description of a price which is gradually weakening. Also refers to commodities such as sugar, cocoa, and coffee.

Sold Out Market
When liquidation of a weakly held position has been completed, and offerings become scarce, the market is said to be sold out.

Sole Proprietorship
A form of business organization in which an individual is fully and personally liable for all the obligations (including debts) of the business, is entitled to all of its profits and exercises complete managerial control.

Specialist System
A type of trading commonly used for the exchange trading of securities in which one individual or firm acts as a market-maker in a particular security, with the obligation to see that trading in that security is fair and orderly by offsetting temporary imbalances in supply and demand by trading for his own account.

Speculative Limit
The maximum position, either net long or net short, in one commodity future (or option) or in all futures (or options) of one commodity combined which may be held or controlled by one person as prescribed by an exchange and/or by the CFTC.

Speculative Position Limit
The maximum position, either net long or net short, in one commodity future (or option) or in all futures (or options) of one commodity combined which may be held or controlled by one person as prescribed by an exchange and/or by the CFTC.

Speculative Position Limit Action Type
A violation arising from exceeding limitations placed upon the number of contracts that may be held by a party at one time.

Speculator
One who tries to profit from buying and selling futures and/or options contracts by anticipating future price movements.

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

Spot Market
See Cash Market.

Spot Month
The futures contract which matures and becomes deliverable during the present month.

Spot Price
The price at which a physical commodity for immediate delivery is selling at a given time and place.

Spread
The purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market against the sale of the commodity in another market, to take advantage of a profit from a change in price relationships. The term spread is also used to refer to the difference between the price of a futures month and the price of another month of the same commodity. A spread can also apply to options.

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

Squeeze
A market situation in which the lack of supplies tends to force shorts to cover their positions by offset at higher prices.

Stay
An order whereby some action is forbidden or held in abeyance until some event occurs or the issuing body lifts its order. Frequently, an order preventing the enforcement of a Decision or Order in a matter while it is on appeal.

Stock Index
An indicator used to measure and report value changes in a selected group of stocks. How a particular stock index tracks the market depends on its composition; the sampling of stocks, the weighing of individual stocks, and the method of averaging used to establish an index.

Stock Market
A market in which shares of stock are bought and sold.

Stop Close Only Order
A stop order which can only be executed, if possible, during the closing period of the market.

Stop Limit Order
A stop limit order is an order that goes into force as soon as there is a trade at the specified price. However, the order can only be filled at the stop limit price or better.

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

Straddle
See Spread.

Strangle
An option position consisting of the purchase or sale of put and call options having the same expiration but different strike prices.

Strike Price
The price at which the buyer of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract.

Summary Action
An action that is taken quickly and without a hearing before the action is taken.

Summary Judgment
A decision made on the basis of statements and evidence presented for the record without a trial. It is used when there is no dispute as to the facts of the case, and one party is entitled to judgment as a matter of law.

Summary Proceeding
A form of adjudication in which ordinary legal procedures are disregarded so that the issue at hand may be resolved in a timely fashion. Usually, a summary proceeding is limited to a single issue.

Support
The place on a chart where the buying of futures contracts is sufficient to halt a price decline.

Swap
In general, the exchange of one asset or liability for a similar asset or liability for the purpose of lengthening or shortening maturities, or raising or lowering coupon rates, to maximize revenue or minimize financing costs.

Swaption
An option to enter into a swap ( i.e., the right, but not the obligation, to enter into a specified type of swap at a specified future date).

Switch
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.

Systemic Risk
Risk that the financial markets as a whole will cease to operate or will operate inefficiently.

T

TRO
See Temporary Restraining Order.

Technical Analysis
An approach to forecasting commodity prices which examines patterns of price change, rates of change, and changes in volume of trading and open interest, without regard to underlying fundamental market factors.

Telemarketing
Use of the telephone to solicit or otherwise communicate with futures and options customers or potential customers.

Temporary Injunction
A prohibitive, equitable remedy issued by a court forbidding a person to commit some action that he is attempting to commit, or restraining him in the continuance of some action. It is intended to last only until a hearing can be held.

Temporary License
If certain conditions are met, an applicant for registration as an associated person, floor broker, floor trader or introducing broker may be granted a temporary license (TL) which allows them to conduct business in that capacity while the application is being considered.

Temporary Restraining Order (TRO)
Prohibits a person from an action that is likely to cause irreparable harm. This differs from an injunction in that it may be granted immediately, without notice to the opposing party and without a hearing. It is intended to last only until a hearing can be held.

Tender
To give notice to the clearing house of the intention to initiate delivery of the physical commodity in satisfaction of the futures contract.

Tenderable Grades
Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.

Terminal Elevator
An elevator located at a point of greatest accumulation in the movement of agricultural products which stores the commodity or moves it to processors.

Terminal Market
Usually synonymous with commodity exchange or futures market, specifically in the United Kingdom.

Theta
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.

Third Party Claim
A claim filed against a person who was not a party to the action, but who may be liable.

Tick
The smallest allowable increment of price movement for a contract. Also referred to as Minimum Price Fluctuation.

Time Limit Order
A customer order that designates the time during which it can be executed.

Time Spread
The selling of a nearby option and buying of a more deferred option with the same strike price.

Time Stamp
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 options buyers are willing to pay for an option in 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.

Time of Day Order
This is an order which is to be executed at a given minute in the session.

To Arrive Contract
A transaction providing for subsequent delivery within a stipulated time limit of a specific grade of a commodity.

Trade Option
An off-exchange option offered to a commercial producer or user of the commodity.

Trade Practice Action Type
A violation arising from the manner of execution of trades on the floor of an exchange but not including decorum or recordkeeping matters.

Traders
Generally people who trade for their own account or employees or institutions who trade for their employer’s accounts.

Trading Advisor
See Commodity Trading Advisor.

Trading Ahead
A dual trader executes a trade for his personal account prior to executing an elected customer order.

Trading Limit
The maximum number of speculative futures contracts one can hold as determined by the CFTC and/or the exchange upon which the contract is traded. Also referred to as Position Limit.

Transfer Notice
A term used on some exchanges to describe a notice of delivery.

Transfer Trades
Entries made upon the books of futures commission merchants for the purpose of: (1) transferring existing trades from one account to another within the same office where no change in ownership is involved; (2) transferring existing trades from the books of one futures commission merchant to the books of another futures commission merchant where no change in ownership is involved. Also called Ex-Pit Transactions.

Transferable Option (or Contract)
A contract which permits a position in the option market to be offset by a transaction on the opposite side of the market in the same contract.

Treble Damages
An amount that is three times the actual losses, based upon a statute.

Trend
The general direction, either upward or downward, in which prices have been moving.

Trendline
In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the trendline is called bullish; if down, it is called bearish.

U

Uncovered Option
A short call or put option position which is not covered by the purchase or sale of the underlying futures contract or physical commodity.

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

Up Front Fees
Fees charged to a pool or a managed account prior to commencement of trading for the pool or account.

V

Variable Price Limit
A price limit schedule, determined by an exchange, that permits variations above or below the normally allowable price movement for any one trading day.

Variation Margin
Additional margin deposited by a clearing member firm to an exchange clearing house during periods of great market volatility or in the case of high-risk accounts.

Versus Cash
A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as Against Actuals or Exchange for Physicals.

Vertical Spread
Buying and selling puts or calls of the same expiration month but having different strike prices.

Volatility
A measurement of the change in price over a given time period.

Volume
The number of purchases and sales of futures or options on futures contracts made during a specified period of time.

W

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.

Wash Sale
Transactions that give the appearance of purchases and sales but which are initiated without the intent to make a bona fide transaction and which generally do not result in any actual change in ownership. Such sales are prohibited by the Commodity Exchange Act.

Wash Trading
Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without resulting in a change in the trader’s market position.

Wire House
See Futures Commission Merchant.

Writer
The issuer, grantor, or maker of an option contract.

X

No entries for this letter

Y

Yield
A measure of the annual return on an investment.

Yield Curve
A chart in which yield level is plotted on the vertical axis, and the term to maturity of debt instruments of similar creditworthiness is plotted on the horizontal axis.

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

Z

No entries for this letter