GLOSSARY

GLOSSARY

actuals: Commodities on hand, ready for shipment, storage and manufacture.
arbitrage:Simultaneous purchase and sale of two different contracts (or a combination of cash and futures) to take advantage of perceived mispricing. In a pure arbitrage, mispricing is locked in and a risk-free profit made through trades.
at-the-market: An order to buy or sell at the best price possible at the time an order is placed.

basis grade: Specified grade, or grades. Named in the exchange's futures contract. Other
bear: A market trending downward, or a person who expects prices to go lower.
bid: A bid, subject to immediate acceptance, made on the floor of exchange to buy a definite number of futures contracts at a specified price.
breaking: A quick decline In price.
bulging:A quick increase In price.
bull:A market trending upward; or a person who expects prices to go higher.
buy on close:To buy at the end of the trading session at a price within the closing range.
buy on opening:To buy at the beginning of a trading session at a price within the opening range.
cash delivery:(see delivery)
cash market:Markets where trading is taking place for spot (immediate or near immediate) delivery as opposed to future delivery.
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 (or range):the price (or price range)recorded during the period designated by the exchange as the official close.
commission house:A concern that buys and sells actual commodities of futures contracts for the accounts of customers.
cover:The cancellation of a short position in any futures contract by the purchase of an equal quantity of the same futures contract (see liquidation).
 
day orders: Orders at a limited price which are understood to be good for the day unless expressly designated as an open order or “good-till cancelled” order.
delivery: The tender and receipt of the actual commodity, or, in the case of agricultural commodities, warehouse receipts covering such commodity, in settlement of a futures contract. Some contracts settle in cash (cash delivery). In which case, open positions are marked to market on the last day of the contract based on the cash market close.
delivery month: Specified month within which delivery may be made under the terms of a futures contract.
delivery notice: A notice of a clearing members intention to deliver a stated quantity of a commodity in settlement of a short futures position.
 
fundamental analysis: An approach to market forecasting that emphasizes the analysis of factors affecting supply and demand (opposite of technical analysis).
futures contract: A term used to designate any or all contracts covering the sale of commodities (including financial instruments and cash representing indexes) for future delivery made on an exchange and subject to its rules.
futures commission merchant (FCM): A futures broker who is allowed to accept orders to buy and sell futures contracts on behalf of customers.
hedge: A sale of futures contracts to offset the ownership or purchase of the underlying cash commodity as a protection against adverse price changes; or, conversely, a purchase of futures contracts to offset the sale of the underlying cash commodity, again to protect against price movements.
index futures: Futures contracts based on indexes. These are cash settlement contracts.
limit: The maximum daily price range above or below the previous close in a specific futures market.
limit order: An order which has some restrictions upon its execution. such as price or time.
liquidation: A transaction made in reducing or off-setting a long or short position, but more often used by the trader to a reduction or closing out of a long position.
local: Independent trader who trades her or his own money on the floor of the exchanges.
long: (1) The buying side of an open futures contract or futures option; (2) a trader whose net position in the futures or options market shows an excess of open purchases over open sales.
margin: Cash or equivalent posted as guarantee of fulfillment of a futures contract (not a down payment).
margin call: Demand for additional funds or equivalent because of adverse price movements.
mark-to-market: The practice of crediting or debiting a traders account based on the daily closing prices of the futures contracts which is yet to be closed out.
market order: An order for immediate execution at the best available price.
nearby: The futures contract closest to expiration.
net position: The difference between the open contracts long and the open contracts short held in any one commodity.
offer: An offer, indicating willingness to sell at a given price (opposite of bid).
on opening: A term used to specify execution of an order during the opening.
open contracts: Contracts which have been bought or sold which have not been closed out by subsequent opposite position or actual delivery or receipt of commodity.
open interest: The number of "open contracts". It refers to unliquidated purchases or sales and never to their combined total.
open order: An order which is good until cancelled.
opening: The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the opening".

pit: An octagonal platform on the trading floor of an exchange, consisting of steps upon which traders and brokers stand while trading (If circular, called a "ring").
point: The minimum unit In which changes in futures prices may be expressed (minimum price fluctuation may be in multiples of points).
position: An interest in the market in the form of open commitments.
price limit: The maximum fluctuation in price of a futures contract permitted during one trading session, as fixed by the rules of a contract market.
purchase and sale statement: A statement sent by the FCM to a customer when his futures position has been reduced or closed out (also called "P and S").

range: The difference between the high and low price of the futures contract during a given period.
reaction: The downward tendency of a commodity after an advance.
round-turn: The execution for the same customer of a purchase transaction and a sales transaction which offset each other.
round-turn commission: The cost to the customer for executing a futures contract which is charged only when the position is liquidated.

scalping: For floor traders, the practice of trading in and out of contracts throughout the trading day in hopes of making a series of small profits.
settlement price: The official daily closing price of a futures contract, set by the exchange.
short: (1) The selling of an option futures contract. (2) A trader whose net position in the futures market shows an excess of open sales over open purchases (see “long”).
speculator: A trader who takes an outright long or short position in the market (opposite of “hedger”). Some speculators also trade spreads.
spread: Usually refers to a simultaneous purchase of a contract and sale of another. Spreads can be transacted between contracts with the same underlying commodity but different months; the same month but different commodities; or the same month and commodity but traded on different exchanges.
technical analysis (charting): In price forecasting, the use of charts and other devices to analyze price-change patterns and changes in volume and open interest to predict future market trends (opposite of fundamental analysis).
underlying: The asset which is traded by the derivatives instrument. This asset may take the form of commodities or other financial products such as interest rates, bonds, foreign currencies, exchange rates, equities or indices of such products.
volume of trading (or sales): A simple addition of successive futures transactions (a transactionconsists of a purchase and matching sale).
variation margin: The change in the margin that takes place after each trading day in a futures contract to mark long and short positions in the market.

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