A

Actuals: The physical or cash commodity, as distinguished from a futures contract.

Aggregation: The principle under which all futures positions owned or controlled by one trader (or group of traders acting in concert) are combined to determine reporting status and compliance with speculative position limits.

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.

Arbitrage: A strategy involving the simultaneous purchase and sale of identical or equivalent commodity futures contracts or other instruments across two or more markets in order to benefit from a discrepancy in their price relationship. In a theoretical efficient market there is a lack of opportunity for profitable arbitrage.

At-the-Market : An order to buy or sell a futures contract at whatever price is obtainable when the order reaches the trading facility.

E

Ease Off : A minor and/or slow decline in the price of a market.

Efficient Market : In economic theory, an efficient market is one in which market prices adjust rapidly to reflect new information. The degree to which the market is efficient depends on the quality of information reflected in market prices. In an efficient market, profitable arbitrage opportunities do not exist and traders cannot expect to consistently out perform the market unless they have lower-cost access to information that is reflected in market prices or unless they have access to information before it is reflected in market prices.

Electronic Trading Facility : A trading facility that operates by an electronic or telecommunications network instead of a trading floor and maintains an automated audit trail of transactions.

Eligible Commercial Entity : An eligible contract participant or other entity approved by the MCPL that has a demonstrable ability to make or take delivery of an underlying commodity of a contract; incurs risks related to the commodity; or is a dealer that regularly provides risk management, hedging services, or market-making activities to entities trading commodities or derivative agreements, contracts, or transactions in commodities.

Eligible Contract Participant : An entity, such as a financial institution, insurance company, or commodity pool, that is classified are as an eligible contract participant based upon its regulated status or amount of assets. This classification permits these persons to engage in transactions (such as trading on a Derivatives Transaction Execution Facility) not generally available to non-eligible contract participants, i.e., retail customers.

Emergency : Any market occurrence or circumstance which requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of, or delivery pursuant to, any contracts on a contract market.

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

Exchange : A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options contracts or securities. Exchanges include designated contract markets and derivatives transaction execution facilities.

Exchange for Physicals : 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 of Futures for Cash, (Against Actuals), or Ex-Pit transactions.

Exchange of Futures for Swaps : A privately negotiated transaction in which a position in a physical delivery futures contract is exchanged for a cash-settled swap position in the same or a related commodity, pursuant to the rules of a futures exchange.

Excluded Commodity: In general, the Commodity Exchange defines an excluded commodity as: any financial instrument such as a security, currency, interest rate, debt instrument, or credit rating; any economic or commercial index other than a narrow-based commodity index; or any other value that is out of the control of participants and is associated with an economic consequence.

Exercise : To elect to buy or sell, taking advantage of the right (but not the obligation) conferred to the owner of an option contract.

Exercise Price (Strike Price) : The price, specified at which the underlying futures contract, or commodity will move from seller to buyer.

F

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

Fill : The execution of an order.

Fill or Kill Order (FOK) : An order that demands immediate execution or cancellation. Typically involving a designation, added to an order, instructing the broker to offer or bid (as the case may be) one time only; if the order is not filled immediately, it is then automatically cancelled.

Final Settlement Price : The price at which a cash-settled futures contract is settled at maturity, pursuant to a procedure specified by the exchange.

Floor Trader : A person with exchange trading privileges who executes his own trades by being personally present in the pit or ring for futures trading.

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 under-margined due to adverse price movements and failure to meet margin calls.

Forward Contract : 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. Terms may be more “personalized” than is the case with standardized futures contracts (i.e., delivery time and amount are as determined between seller and buyer). A price may be agreed upon in advance, or there may be agreement that the price will be determined at the time of delivery.

Forward Months : Futures contracts, currently trading, calling for later or distant delivery.

Front Month : The Spot or Nearby Delivery Month, the nearest traded contract month.

Fundamental Analysis : Study of basic, underlying factors that will affect the supply and demand of the commodity being traded in futures contracts. theory contended that the stock market tends to move in discernible and predictable patterns reflecting the basic harmony of nature and extended by other technical analysts to futures markets; (2) in technical analysis, a charting method based on the belief that all prices act as waves, rising and falling rhythmically.)

Fungibility : The characteristic of interchangeability. Futures contracts for the same commodity and delivery month traded on the same exchange are fungible due to their standardized specifications for quality, quantity, delivery date, and delivery locations.

Futures Contract : An agreement to purchase or sell a commodity for delivery in the future: (1) at a price that is determined at initiation of the contract; (2) that obligates each party to the contract to fulfill the contract at the specified price; (3) that is used to assume or shift price risk; and (4) that may be satisfied by delivery or offset.

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

G

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 fee 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.

Goods Till Date Order (GTD) : Order which is valid only for the week in which it is placed.

Good 'Till Canceled Order (GTC) : Order which is valid at any time Open Order.

Grades : Various qualities of a commodity.

Grading Certificates : A formal document setting forth the quality of a commodity as determined by authorized inspectors or graders.

Guaranteed Introducing Broker : An Introducing Broker that has entered into a guarantee agreement with MCPL (main broker), whereby the MCPL agrees to be jointly and severally liable for all of the Introducing Broker’s obligations under the Commodity Exchange. By entering into the agreement, the Introducing Broker is relieved from the necessity of raising its own capital to satisfy minimum financial requirements. In contrast, an independent Introducing Broker must raise its own capital to meet minimum financial requirements.

H

Haircut : In computing the value of assets for purposes of capital, segregation, or margin requirements, a percentage reduction from the stated value (e.g., book value or market value) to account for possible declines in value that may occur before assets can be liquidated.

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

Hardening : (1) Describes a price which is gradually stabilizing; (2) a term indicating a slowly advancing market.

Head and Shoulders : In technical analysis, a chart formation that resembles a human head and shoulders and is generally considered to be predictive of a price reversal. A head and shoulders top (which is considered predictive of a price decline) consists of a high price, a decline to a support level, a rally to a higher price than the previous high price, a second decline to the support level, and a weaker rally to about the level of the first high price. The reverse (upside-down) formation is called a head and shoulders bottom (which is considered predictive of a price rally).

Heavy : A market in which prices are demonstrating either an inability to advance or a slight tendency to decline.

Hedge Exemption : An exemption from speculative position limits for bona fide hedgers and certain other persons who meet the requirements of exchange and MCPL rules.

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.

Hedging : Taking a position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change; or a purchase or sale of futures as a temporary substitute for a cash transaction that will occur later. One can hedge either a long cash market position (e.g., one owns the cash commodity) or a short cash market position (e.g., one plans on buying the cash commodity in the future).

Historical Volatility : A statistical measure of the volatility of a futures contract, security, or other instrument over a specified number of past trading days.

IJK

Initial Deposit : See Initial Margin.

Initial Margin : Customers' funds put up as security for a guarantee of contract fulfillment at the time a futures market position is established.

In Position : Refers to a commodity located where it can readily be moved to another point or delivered on a futures contract. Commodities not so situated are "out of position.

In Sight : The amount of a particular commodity that arrives at terminal or central locations in or near producing areas. When a commodity is "in sight," it is inferred that reasonably prompt delivery can be made; the quantity and quality also become known factors rather than estimates.

Instrument : A tradable asset such as a commodity, or derivative, or an index or value that underlies a derivative or could underlie a derivative.

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.

Intermediary : A person who acts on behalf of another person in connection with futures trading, such as a Futures Commission Merchant, Introducing Broker, Commodity Pool Operator, Commodity Trading Advisor, or Associated Person.

Inverted Market : A futures market in which the nearer months are selling at prices higher than the more distant months; a market displaying "inverse carrying charges," characteristic of markets with supply shortages.

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

Invoice 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.

Job Lot : A form of contract having a smaller unit of trading than is featured in a regular contract.

L

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 exchange 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 : Day on which trading ceases for the maturing (current) delivery month.

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

Limit (Up or Down) : 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. In some futures contracts, the limit may be expanded or removed during a trading session a specified period of time after the contract is locked limit.

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 minimum sale price or maximum purchase price, as contrasted with a market order, which implies that the order should be filled as soon as possible at the market price.

Liquidation : The closing out of a long position. The term is sometimes used to denote closing out a short position, but this is more often referred to as covering.

Liquid Market : A market in which selling and buying can be accomplished with minimal effect on price.

Local : An individual with exchange trading privileges who trades for his own account, traditionally on an exchange floor, and whose activities provide market liquidity.

Location : A Delivery Point for a futures contract.

Locked-In : A hedged position that cannot be lifted without offsetting both sides of the hedge (spread).

Locked Limit : A price that has advanced or declined the permissible limit during one trading session, as fixed by the rules of an exchange.

Long : (1) One who has bought a futures contract to establish a market position; (2) a market position that obligates the holder to take delivery; (3) one who owns an inventory of commodities.

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

Lookalike Swap : An over-the-counter swap that is cash settled based on the settlement price of a similar exchange-traded futures contract on a specified trading day.

M

 Maintenance Margin : See Margin.

Managed Account : See Controlled Account and Discretionary Account.

Manipulation : Any planned operation, transaction, or practice that causes or maintains an artificial price. Specific types include corners and squeezes as well as unusually large purchases or sales of a commodity in a short period of time in order to distort prices, and putting out false information in order to distort prices.

Many-to-Many : Refers to a trading platform in which multiple participants have the ability to execute or trade commodities, derivatives, or other instruments by accepting bids and offers made by multiple other participants. In contrast to one-to-many platforms, many-to-many platforms are considered trading facilities under the Commodity Exchange Act. Traditional exchanges are many-to-many platforms.

Margin : The amount of money or collateral deposited by a customer with his broker, by a broker with a clearing member, or by a clearing member with a clearing organization. The margin is not partial payment on a purchase. (1) Initial margin is the amount of margin required by the broker when a futures position is opened; (2) Maintenance margin is an amount that must be maintained on deposit at all times. If the commodity price in a customer's account drops to or below the level of maintenance margin because of adverse price movement, the broker must issue a margin call to restore the customer's fund to the initial level. Exchanges specify levels of initial margin and maintenance margin for each futures contract, but Forward Market commision may require their customers to post margin at higher levels than those specified by the exchange. Futures margin is determined by the SPAN margining system, which takes into account all positions in a customer’s portfolio.

Margin Call : (1) A request from a brokerage firm to a customer to bring margin deposits up to initial levels; (2) a request by the clearing organization to a clearing member to make a deposit of original margin, or a daily or intra-day variation margin payment because of adverse price movement, based on positions carried by the clearing member.

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. Also referred to as a board order. Compare to Stop Order.

Market Maker : A professional securities dealer or person with trading privileges on an exchange 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 futures 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. Occasionally a futures exchange will compensate a person with exchange trading privileges to take on the obligations of a market maker to enhance liquidity in a newly listed or lightly traded futures contract.

Market-on-Close : An order to buy or sell at the end of the trading session at a price within the closing range of prices.

Market-on-Opening : An order to buy or sell at the beginning of the trading session at a price within the opening range of prices.

Market Order : An order to buy or sell a futures contract at whatever price is obtainable at the time it is entered in the ring, pit, or other trading platform.

Mark-to-Market : Part of the daily cash flow system used by exchanges to maintain a minimum level of margin equity for a given future contracts position by calculating the gain or loss in each contract position resulting from changes in the price of the future contracts at the end of each trading session. These amounts are added or subtracted to each account balance.

Maturity : Period within which a futures contract can be settled by delivery of the actual commodity.

Maximum Price Fluctuation : (Up or Down) Daily Price Limit.

Member Rate : Commission charged for the execution of an order for a person who is a member of or has trading privileges at the exchange.

Mini : Refers to a futures contract that has a smaller contract size than an otherwise identical futures contract.

Minimum Price Contract : A hybrid commercial forward contract for agricultural products that includes a provision guaranteeing the person making delivery a minimum price for the product. For agricultural commodities, these contracts became much more common with the introduction of exchange-traded options on futures contracts, which permit buyers to hedge the price risks associated with such contracts.

Minimum Price Fluctuation (Minimum Tick) : Smallest increment of price movement possible in trading a given contract.

Minimum Tick : Minimum Price Fluctuation.

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

N

Nearbys : The nearest delivery months of a commodity futures market.

Nearby Delivery Month : The month of the futures contract closest to maturity; the front month or lead month.

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.

Net Asset Value (NAV) : The value of each unit of participation in a commodity pool.

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

Next Day : A spot contract that provides for delivery of a commodity on the next calendar day or the next business day.

Non-Member Traders : Speculators and hedgers who trade on the exchange through a member or a person with trading privileges but who do not hold exchange memberships or trading privileges.

Notice of Intent to Deliver : A notice that must be presented by the seller of a futures contract to the clearing organization prior to delivery. The clearing organization then assigns the notice and subsequent delivery instrument to a buyer.

O

Offer : An indication of willingness to sell at a given price; opposite of bid, the price level of the offer may be referred to as the ask.

Offset : Liquidating a purchase of futures contracts through the sale of an equal number of contracts of the same delivery month, or liquidating a short sale of futures through the purchase of an equal number of contracts of the same delivery month.

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

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."

Open Interest : The total number of futures contracts long or short in a delivery month or market that has been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery. Also called Open Contracts or Open Commitments.

Open Order (or Orders) : An order that remains in force until it is canceled or until the futures contracts expire.

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

Option : A contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific price within a specified period of time, regardless of the market price of that instrument.

Original Margin : Term applied to the initial deposit of margin money each clearing member firm is required to make according to clearing organization 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 rules. See Initial Margin.

Outright : An order to buy or sell only one specific type of futures contract; an order that is not a spread order.

Out Trade : A trade that cannot be cleared by a clearing organization because the trade data submitted by the two clearing members or two traders involved in the trade differs in some respect (e.g., price and/or quantity). In such cases, the two clearing members or traders involved must reconcile the discrepancy, if possible, and resubmit the trade for clearing. If an agreement cannot be reached by the two clearing members or traders involved, the dispute would be settled by an appropriate exchange committee.

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

Overnight Trade : A trade which is not liquidated during the same trading session during which it was established.

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

P

P&S (Purchase and Sale Statement) : A statement sent by exchanges to customer(broker to sub-broker) when any part of a futures position is offset, showing the number of contracts involved, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, the net profit or loss on the transactions, and the balance. Exchanges also send P&S Statements whenever any other event occurs that alters the account balance including when the customer(broker) deposits or withdraws margin and when the exchanges places excess margin in interest bearing instruments for the customer’s benefit.

Paper Profit or Loss : The profit or loss that would be realized if open contracts were liquidated as of a certain time or at a certain price.

Par : (1) Refers to the standard delivery point(s) and/or quality of a commodity that is deliverable on a futures contract at contract price. Serves as a benchmark upon which to base discounts or premiums for varying quality and delivery locations.

Pay/Collect : A shorthand method of referring to the payment of a loss (pay) and receipt of a gain (collect) by a clearing member to or from a clearing organization that occurs after a futures position has been marked-to-market.

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

Point-and-Figure : A method of charting that 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.

Point Balance : A statement prepared by exchanges to show profit or loss on all open contracts using an official closing or settlement price.

Portfolio Insurance : A trading strategy that uses stock index futures to protect stock portfolios against market declines.

Portfolio Margining : A method for setting margin requirements that evaluates positions as a group or portfolio and takes into account the potential for losses on some positions to be offset by gains on others. Specifically, the margin requirement for a portfolio is typically set equal to an estimate of the largest possible decline in the net value of the portfolio that could occur under assumed changes in market conditions. Sometimes referred to as Risked-Based Margining.

Position : An interest in the market, either long or short, in the form of one or more open contracts.

Position Accountability : A rule adopted by an exchange requiring persons holding a certain number of outstanding contracts to report the nature of the position, trading strategy, and hedging information of the position to the exchange, upon request of the exchange.

Position Trader : A commodity trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from a day trader, who will normally initiate and offset a futures position within a single trading session.

Posted Price : An announced or advertised price indicating what a firm will pay for a commodity or the price at which the firm will sell it.

Premium : (1) the amount a price would be increased to purchase a better quality commodity; (3) refers to a futures delivery month selling at a higher price than another, as "July is at a premium over May."

Price Basing : A situation where producers, processors, merchants, or consumers of a commodity establish commercial transaction prices based on the futures prices for that or a related commodity (e.g., an offer to sell corn at low price over the December futures price). This phenomenon is commonly observed in grain and metal markets.

Price Discovery : The process of determining the price level for a commodity based on supply and demand conditions. Price discovery may occur in a futures market or cash market.

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

Prop Shop : A proprietary trading group, especially one where the group's traders trade electronically at a physical facility operated by the group.

Proprietary Account : An account that Exchanges carries for itself or a closely related person, subsidiary or affiliate company, general partner, director, Associated Person.

Proprietary Trading Group : An organization whose owners, employees and/or contractors trade in the name of accounts owned by the group and exclusively use the funds of the group for all of their trading activity.

Public : In trade parlance, non-professional speculators as distinguished from hedgers and professional speculators or traders.

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

QR

Quotation : The actual price or the bid or ask price of either cash commodities or futures contracts.

Rally : An upward movement of prices.

Random Walk : An economic theory that market price movements move randomly. This assumes an efficient market. The theory also assumes that new information comes to the market randomly. Together, the two assumptions imply that market prices move randomly as new information is incorporated into market prices. The theory implies that the best predictor of future prices is the current price, and that past prices are not a reliable indicator of future prices. If the random walk theory is correct, Technical Analysis cannot work.

Range : The difference between the high and low price of a commodity, futures contract during a given period.

Reaction : A downward price movement after a price advance.

Recovery : An upward price movement after a decline.

Regular Warehouse : A processing plant or warehouse that satisfies exchange requirements for financing, facilities, capacity, and location and has been approved as acceptable for delivery of commodities against futures contracts.

Reporting Level : Sizes of positions set by the exchanges and/or the MCPL 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.

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

Resting Order : A limit 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.

Retender : In specific circumstances, some exchanges permit holders of futures contracts who have received a delivery notice through the clearing organization to sell a futures contract and return the notice to the clearing organization 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.

Retracement : A reversal within a major price trend.

Reversal : A change of direction in prices.

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

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

Ring : A circular area on the trading floor of an exchange where traders and 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 : A trading procedure involving the shift of one month of a straddle into another future month while holding the other contract month. The shift can take place in either the long or short straddle month. The term also applies to lifting a near futures 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.

S

Sample Grade : Usually the lowest quality of a commodity, too low to be acceptable for delivery in satisfaction of futures contracts.

Scale Down (or Up) : To purchase or sell a scale down means to buy or sell at regular price intervals in a declining market. To buy or sell on scale up means to buy or sell at regular price intervals as the market advances.

Scalper : A speculator on the trading floor of an exchange who buys and sells rapidly, with small profits or losses, holding his positions for only a short time during a trading session. Typically, a scalper will stand ready to buy at a fraction below the last transaction price and to sell at a fraction above, e.g., to buy at the bid and sell at the offer or ask price, with the intent of capturing the spread between the two, thus creating market liquidity.

Security : Futures contracts on Broad-Based Securities Indexes are not considered securities.

Security Deposit : See Margin.

Self-Regulatory Organization : Exchanges and registered futures associations that enforce financial and sales practice requirements for their members.

Seller's Call : Seller's Call, also referred to as call purchase, is the same as the buyer's call except that the seller has the right to determine the time to fix the price.

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 (or Short Hedge) : Selling futures contracts to protect against possible decreased prices of commodities.

Series : covering the same underlying futures contract or other underlying instrument, having the same strike price and expiration date.

Settlement : The act of fulfilling the delivery requirements of the futures contract.

Settlement Price : The daily price at which the clearing organization clears all trades and settles all accounts between clearing members of 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 exchange to even up positions which may not be able to be liquidated in regular trading.

Shock Absorber : A temporary restriction in the trading of certain stock index futures contracts that becomes effective following a significant intraday decrease in stock index futures prices. Designed to provide an adjustment period to digest new market information, the restriction bars trading below a specified price level. Shock Absorbers are generally market specific and at tighter levels than circuit breakers.

Short : (1) The selling side of an open futures contract; (2) a trader whose net position in the futures market shows an excess of open sales over open purchases. See Long.

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

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

Soft : (1) A description of a price that is gradually weakening; or (2) this term also refers to certain “soft” commodities such as sugar and coffee.

Speculative Bubble : A rapid run-up in prices caused by excessive buying that is unrelated to any of the basic, underlying factors affecting the supply or demand for a commodity or other asset. Speculative bubbles are usually associated with a "bandwagon" effect in which speculators rush to buy the commodity (in the case of futures, "to take positions") before the price trend ends, and an even greater rush to sell the commodity (unwind positions) when prices reverse.

Speculative Position Limit : The maximum position, either net long or net short, in one commodity future or in all futures of one commodity combined that may be held or controlled by one person (other than a person eligible for a hedge exemption) as prescribed by an exchange . Speculative Limits, Hedging, and Aggregation.

Speculator : In commodity futures, an individual who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements.

Split Close : A condition that refers to price differences in transactions at the close of any market session.

Spot : Market of immediate delivery of and payment for the product.

Spot Commodity : (1) The actual commodity as distinguished from a futures contract; (2) sometimes used to refer to cash commodities available for immediate delivery. Cash Commodity.

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

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

Spread (or Straddle) : 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.

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. The order, however, can only be filled at the stop limit price or better.

Stop Order : This is an order that becomes a market order when a particular price level is reached. A sell stop is placed below the market, a buy stop is placed above the market. Sometimes referred to as Stop Loss Order.

Strategy-Based Margining : A method for setting margin requirements whereby the potential for gains on one position in a portfolio to offset losses on another position is taken into account only if the portfolio implements one of a designated set of recognized trading strategies as set out in the rules of an exchange or clearing organization.

Street Book : A daily record kept by exchanges and clearing members showing details of each futures transaction, including date, price, quantity, market, commodity, future, strike price, option type, and the(client code) person for whom the trade was made.

Strike Price (Exercise Price) : The price, specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to buyer.

Strong Hands : When used in connection with delivery of commodities on futures contracts, the term usually means that the party receiving the delivery notice probably will take delivery and retain ownership of the commodity; when used in connection with futures positions, the term usually means positions held by trade interests or well-financed speculators.

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

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, a tactic referred to as "rolling forward."

UV

Unable : Unless they are designated “GTC” (Good Until Canceled) or “Open,” all orders not filled by the end of a trading day are deemed “unable” and void.

Underlying Commodity : The cash commodity underlying a futures contract. Also, the commodity or futures contract on which a commodity option is based, and which must be accepted or delivered if the option is exercised.

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 : Payment made on a daily or intraday basis by a clearing member to the clearing organization based on adverse price movement in positions carried by the clearing member, calculated separately for customer and proprietary positions.

Visible Supply : Usually refers to supplies of a commodity in licensed warehouses. Often includes floats and all other supplies "in sight" in producing areas.

Volatility : A statistical measurement of the rate of price change of a futures contract, security, or other instrument underlying an option.

Volatility Trading : Strategies designed to speculate on changes in the volatility of the market rather than the direction of the market.

Volume of Trade : The number of contracts traded during a specified period of time. It may be quoted as the number of contracts traded or as the total of physical units, such as metric or tones, barrels or units.

W

Warehouse Receipt: A document certifying possession of a commodity in a licensed warehouse that is recognized for delivery purposes by an exchange.

Weak Hands : When used in connection with delivery of commodities on futures contracts, the term usually means that the party probably does not intend to retain ownership of the commodity; when used in connection with futures positions, the term usually means positions held by small speculators.

Weather Derivative : A derivative whose payoff is based on a specified weather event, for example, the average temperature in different states. Such a derivative can be used to hedge risks related to the demand for heating fuel or electricity.