Accrued Interest
Interest earned between the most recent interest payment and the present date but not yet paid to the lender.

Actuals
An actual physical commodity someone is buying or selling. Example- soybeans, corn, gold, silver, Treasury bonds, etc.

Add-on Method
A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.

Adjusted Futures Price
The cash-price equivalent reflected in the current futures price. This is calculated by taking the futures price multiplied by the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.

Against Actuals
A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as "against actuals" or "versus cash".

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

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

Balance of Payments
A statistical compilation formulated by a sovereign nation of all economic transactions between residents of that nation and residents of all other nations during a stipulated period of time, usually a calendar year. A favourable balance of payments exists when more payments are coming in than going out.

Bar Chart
These are the most popular type of chart used in technical analysis. The visual representation of price activity over a given period of time is used to spot trends and patterns.

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

Bear
An investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.

Bear Market
A period of declining market prices.

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

Bid
The price at which a market maker is willing to buy a security. In other words, the bid is what someone is willing to pay for an asset.

Broker
A company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.

Brokerage Fee
A fee charged by a broker for executing a transaction.

Brokerage House
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".

Bull
Someone who thinks market prices will rise.

Bull Market
A period of rising market prices.

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

Butterfly Spread
An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike prices are used in the bull spread, and the higher strike price in the bear spread. Both puts and calls can be used.

Buying Hedge
A transaction that commodities investors undertake to hedge against possible increases in the prices of the actuals underlying the futures contracts.

Calendar Spread
The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same commodity on the same exchange. It is 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.

Call Option
An option that gives the buyer the right, but not the obligation, to purchase (go "long") the underlying futures contract at the strike price on or before the expiration date.

Canceling Order
An order that deletes a customer's previous order.

Carrying Charge
For physical commodities such as grains and metals, it is the cost of storage space, insurance and finance charges incurred when holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of funds necessary to buy the instrument. Also referred to as the ‘cost of carry’.

Carryover
Grain and oilseed commodities not consumed during the marketing year and remaining in storage at the year-end. These stocks are "carried over" into the next marketing year and added to the stocks produced during that crop year.

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

Cash Market
A place where people buy and sell the actual commodities, i.e., grain elevator, bank, etc. Spot usually refers to a cash market price for a physical commodity that is available for immediate delivery. A forward contract is a cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

Certificate of Deposit (CD)
A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest.

Charting
The use of charts to analyze market behavior and anticipate future price movements. Those who use charting as a trading method plot such factors as high, low and settlement prices, average price movements, volume and open interest. Two basic price charts are- bar charts and point-and-figure charts.  It is applied for anticipating future price movement using historical prices, trading volume, open interest and other trading data to study price patterns.

Cheap
In colloquial expression, it implies a commodity being under priced.

Cheapest to Deliver
A method to determine which particular cash debt instrument is most profitable to deliver against a futures contract.

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

Clearing 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. Margins are determined on the basis of market risk and contract value.  It’s also referred to as a performance-bond margin.

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

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

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

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

Commission Fee
A fee charged by a broker for executing a transaction. Also referred to as brokerage fee.

Commission House
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 "wire house".

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

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

Commodity Pool Operator
An individual or organization that operates or solicits funds for a commodity pool.

Commodity Trading Adviser
A person who, for compensation or profit, directly or indirectly advises others as to the value or the advisability of buying or selling futures contract. Advising indirectly includes exercising trading authority over a customer's account as well as providing recommendations through written publications or other media.

Concurrent Indicators
Market indicators showing the general direction of the economy and confirming or denying the trend implied by the leading indicators.

Contract Month
A specific month in which delivery may take place under the terms of a futures contract.

Controlled Account
An arrangement by which the holder of the account gives written power of attorney to another person, often his broker, to make trading decisions. Also known as a discretionary or managed account.

Convergence
A term referring to cash and futures prices tending to come together (i.e., the basis approaches zero) as the futures contract nears expiration.

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

Coupon
The interest rate on a debt instrument expressed in terms of a percent on an annualized basis that the issuer guarantees to pay the holder until maturity.

Cross-Hedging
Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures markets follow similar price trends (e.g., using soybean meal futures to hedge fish meal).

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

Current Yield
The ratio of the coupon to the current market price of the debt instrument.

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

Day Traders
Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.

Deferred (Delivery) Month
The more distant month(s) in which futures trading is taking place, as distinguished from the nearby (delivery) month.

Deliverable Grades
The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the standard called for by the exchange. Also referred to as contract grades.

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

Delivery Month
A specific month in which delivery may take place under the terms of a futures contract. Also referred to as contract month.

Delivery Points
The locations and facilities designated by a futures exchange where stocks of a commodity may be delivered in fulfillment of a futures contract, under procedures established by the exchange.

Delta
A measure of how much an option premium changes corresponding to a unit change in the underlying futures price. Delta often is interpreted as the probability of the option becoming in-the-money by expiration.

Demand, Law of
The inverse relationship between product demand and its price when all other factors remain constant.

Differentials
Price differences between classes, grades and delivery locations of various stocks of the same commodity.

Discount Method
A method of paying interest by issuing a security at less than par and repaying par value at maturity. The difference between the higher par value and the lower purchase price is the interest.

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

Discretionary Account
An arrangement by which the holder of the account gives written power of attorney to another person, often his broker, to make trading decisions. Also known as a controlled or managed account.

Econometrics
The application of statistical and mathematical methods in the field of economics to test and quantify economic theories and the solutions to economic problems.

Equilibrium Price
The market price at which the quantity supplied of a commodity equals the quantity demanded.

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.

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

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

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

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

Face Value
The amount of money printed on the face of the certificate of a security; the original dollar amount of indebtedness incurred.

Fill-or Kill
A customer order that is a price limit order that must be filled immediately or canceled.

Financial Instrument
There are two basic types: (1) a debt instrument, which is a loan with an agreement to pay back funds with interest; (2) an equity security, which is share or stock in a company.

Floor Broker (FB) -
An individual who executes orders for the purchase or sale of any commodity futures or options contract on any contract market for any other person.

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

Foreign Exchange Market
An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication. Also referred to as a forex market.


Forward (Cash) Contract
A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

Full Carrying Charge Market
A futures market where the price difference between delivery months reflects the total costs of interest, insurance and storage.

Fundamental Analysis
A method of anticipating future price movement using supply and demand information.

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

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

GLOBEX
A global after-hours electronic trading system.

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

Give-up
A transaction in which one clearing firm places and order for execution on behalf of a different clearing firm which ultimately will carry the trade.

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

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

Gross National Product
Gross Domestic Product plus the income accruing to domestic residents as a result of investments abroad less income earned in domestic markets accruing to foreigners abroad.

Gross Processing Margin
The difference between the cost of soybeans and the combined sales income of the processed soybean oil and meal.

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

Hedging
The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes. Selling (Short) Hedge - Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold. and Purchasing (Long)

Hedge
Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations. Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).

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

Holder
The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Also referred to as the 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.

In-the-Money Option
For a call option, when the option's strike price is below the market price of the underlying asset. For a put option, when the strike price is above the market price of the underlying asset.

Initial Margin
Intrinsic Value is the amount the buyer would get if the option is exercised. It is also called ‘parity value’. Intrinsic value in options is the in-the-money portion of the option's premium.

Intercommodity Spread
The purchase of a given delivery month of one futures market and the simultaneous sale of the same delivery month of a different, but related, futures market.

Interdelivery Spread
The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same commodity on the same exchange. Also referred to as an intramarket or calendar spread.

Intermarket Spread
The sale of a given delivery month of a futures contract on one exchange and the simultaneous purchase of the same delivery month and futures contract on another exchange.

Intrinsic Value
The amount by which an option is in-the-money. An option having intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract.

Introducing Broker
A person or organization that solicits or accepts orders to buy or sell futures contracts or commodity options but does not accept money or other assets from customers to support such orders.

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

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

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

Last Trading Day
The final day when trading may occur in a given futures or option contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement.

Leading Indicators
Market indicators that signal the state of the economy for the coming months. Some of the leading indicators include: average manufacturing workweek, initial claims for unemployment insurance, orders for consumer goods and material, percentage of companies reporting slower deliveries, change in manufacturers' unfilled orders for durable goods, plant and equipment orders, new building permits, index of consumer expectations, change in material prices, prices of stocks, change in money supply.

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

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

Limits
The maximum number of speculative futures contracts one can hold as determined by the exchange upon which the contract is traded. Also referred to as trading limit. The maximum advance or decline from the previous day's settlement permitted for a contract in one trading session by the rules of the exchange.

Linkage
The ability to buy (sell) contracts on one exchange and later sell (buy) them on another exchange.

Liquid
A characteristic of a security or commodity market with enough units outstanding to allow large transactions without a substantial change in price. Institutional investors are inclined to seek out liquid investments so that their trading activity will not influence the market price.

Liquidate
Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract. It is also known as the process of taking a second futures or options position opposite to the initial or opening position.

Loan Program
A federal program in which the government lends money at pre-announced rates to farmers and allows them to use the crops they plant for the upcoming crop year as collateral. Default on these loans is the primary method by which the government acquires stock of agricultural commodities.

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

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

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

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

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

Margin
A specific dollar amount, set by each exchange, that both buyers and sellers must deposit as a guarantee that both will perform as agreed to make or take delivery during a designated period of time.

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

Market Order
An order to buy or sell a futures contract of a given delivery month to be filled at the best possible price and as soon as possible.

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

Marking-to-Market
To debit or credit on a daily basis the margin account based on the close of that day's trading session. In this way, buyers and sellers are protected against the possibility of contract default.

Minimum Price Fluctuation
The smallest allowable increment of price movement for a contract.

Nearby (Delivery) Month
The futures contract month closest to expiration. Also referred to as spot month.

Negative Yield Curve
When the yield on a short-term security is higher than the yield on a long-term security, partially because high interest rates are creating a greater demand for short-term borrowing.

OPEC
Organization of Petroleum Exporting Countries (OPEC), emerged as the major petroleum pricing power in 1973, when the ownership of oil production in the Middle East transferred from the operating companies to the governments of the producing countries or to their national oil companies. Members are: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

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

Offset
Taking a second futures or options position opposite to the initial or opening position. It is also the selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract.

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

Open Market Operation
The buying and selling of government securities, treasury bills, notes and bonds by the Federal Reserve.

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

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

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

Option Buyer
The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Also referred to as the holder.

Option Premium
It is price of an option, being the sum of money that the option buyer pays and the option seller receives for the rights granted by the option.

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

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

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

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

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

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

Par
The face value of a security. For example, a bond selling at par is worth the same dollar amount it was issued for or at which it will be redeemed at maturity.

Payment-In-Kind Program
A government program in which farmers who comply with a voluntary acreage-control program and set aside an additional percentage of acreage specified by the government receive certificates that can be redeemed for government-owned stocks of grain.

Performance Bond Margin
The amount of money deposited by both buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit. They are financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations.

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

Point-and-Figure Charts
Charts that show price changes of a minimum amount regardless of the time period involved.

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

Position Trader
An approach to trading in which the trader either buys or sells contracts and holds them for an extended period of time.

Premium
1. The total cost of an option.
2. The difference between the higher price paid for a fixed-income security and the security's face amount at issue. 
The premium of an option is basically the sum of the option's intrinsic and time value. It is important to note that volatility also affects the premium.

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

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

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

Primary Market
Market of new issues of securities.

Prime Rate
Interest rate charged by major banks to their most creditworthy customers.

Producer Price Index (PPI)
An index that shows the cost of resources needed to produce manufactured goods during the previous month.

Pulpit
A raised structure adjacent to, or in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange, record price changes as they occur in the trading pit.

Purchase and Sell Statement
A Statement sent by a commission house to a customer when his futures or options on futures position has changed, showing the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges and the net profit or loss on the transaction.

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

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

Range (Price)
The price span during a given trading session, week, month, year, etc.

Resistance
A level above which prices have had difficulty penetrating.

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

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

Scalper
A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.

Secondary Market
Market where previously issued securities are bought and sold.

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

Selling Hedge or Short Hedge
Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold. The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes.

Short 
As a Noun-One who has sold futures contracts or plans to purchase a cash commodity. 
As a Verb- Selling futures contracts or initiating a cash forward contract sale without offsetting a particular market position.

Short Hedge
Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold.

Speculator
A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. Speculators assume market price risk and add liquidity and capital to the futures markets.

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

Spot Month
The futures contract month closest to expiration. Also referred to as nearby delivery month.

Spread
The price difference between two related markets or commodities.

Spreading
The simultaneous buying and selling of two related markets in the expectation that a profit will be made when the position is offset. Examples include: buying one futures contract and selling another futures contract of the same commodity but different delivery month; buying and selling the same delivery month of the same commodity on different futures exchanges; buying a given delivery month of one futures market and selling the same delivery month of a different, but related, futures market.

Stock Index
Index based on a statistical compilation of the share prices of a number of representative stocks.

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

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

Stop-Limit Order
A variation of a stop order in which a trade must be executed at the exact price or better. If the order cannot be executed, it is held until the stated price or better is reached again.

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

Supply, Law of
The direct relationship between product supply and its price.

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

Suspension
The end of the evening session for specific futures and options markets traded at the Chicago Board of Trade.

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

Tick Size
An essential feature of a futures contract. It’s the minimum minimum amount by which the price quoted can change. It is decided by the exchange.

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

Time Value
Option Value is made up of two components viz. Intrinsic Value and Time Value. The additional value (over and above the Intrinsic Value) is called Time Value. Time Value is also called ‘premium over parity’

 For example, if a Satyam Feb 260 Call is quoting for Rs 25 while the Market Price of Satyam is Rs 262, the values are as under:

Total Option Value (i.e. Option Price): Rs 25
Intrinsic Value (262 - 260)              :  Rs 2
Time Value (25 - 2)                        :  Rs 23

Time and Sales Ticker
Part of the Chicago Board of Trade Market Profile. Its a system consisting of an on-line graphic service that transmits price and time information throughout the day.

Time-Stamped
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.

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

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

Treasury Bill
A Treasury bill is a short-term U.S. government obligation with an original maturity of one year or less. Unlike a bond or note, a bill does not pay a semi-annual, fixed rate coupon. A bill is typically issued at a price below its par value and is therefore a discounted instrument. The level of the discount depends on the level of prevailing interest rates. In general, the higher short-term interest rates are, the greater the discount. The return to an investor in bills is simply the difference between the issue price and par value.

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

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

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

Versus Cash
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 different strike prices.

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

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

Wire House
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.

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

Yield
A measure of the annual return on an investment.

Yield Curve
A chart in which the yield level is plot on the vertical axis and the term to maturity of debt instruments of similar creditworthiness is plotted n the horizontal axis. The yield curve is positive when long-term rates are higher than short-term rates; however, the yield curve is negative, or inverted, when long term rates are lower than short term rates.

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