Glossary

source: Orion Futures Group, Inc.

A B C D F G H I L M N O P R S T V W

ACCOUNT EXECUTIVE – The person who deals with customers and their orders in commission house offices.

ACTUALS – The physical or cash commodity, as distinguished from commodity futures contracts.

ARBITRAGE – The simultaneous purchase of one commodity against the sale of another in order to profit from distortions in usual price relationships.

AT THE MARKET – Orders which are intended to be executed immediately by the floor broker at the best obtainable price.

 

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BASIS – Point difference over or under a designated future at which a cash commodity of a certain description is sold or quoted. A most important term for those who hedge.

 

BEAR MARKET – A market characterized by falling prices.

BID – An offer to buy a specific quantity of a commodity that is subject to immediate acceptance.

BROKER – A person paid a fee or commission for acting as a agent in making contracts or sales.

BULL MARKET – A market characterized by rising prices.

BUOYANT – Describes a market in which prices have a tendency to rise easily with a considerable show of strength.

BUYING HEDGE – A hedge that is initiated by taking a long position in the futures market equal to the amount of the cash commodity which eventually needed.

 

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CARRYING CHARGE – The cost to store and insure a physical commodity.

 

CFTC – The Commodity Futures Trading Commission.

CHART – Futures prices plotted in a way that the chartist believes gives insight into futures price movements. Several futures markets are regularly influenced by buying or selling based on traders’ price chart indications.

CHICAGO BOARD OF TRADE (CBOT) – The world’s largest futures exchange, it was founded in 1848.

CHICAGO MERCANTILE EXCHANGE (CME) – The world’s largest livestock exchange, it traces its origins to a group of agricultural dealers who formed the Chicago Produce Exchange in 1874. It was given its present name in 1919.

CLOSE – A period of time at the end of the trading session when all orders are filled within the closing range.

CLOSING RANGE – A range of closely related prices in which transactions take place at the closing of the market; buying and selling orders at the closing might have been filled at any point within such a range.

CONTRACT – In futures markets, a standardized traded instrument that specifies the quantity and quality of a commodity (or financial asset) for delivery (or cash settlement) at a specified future date.

COVER – To buy futures contracts in order to offset previous selling.

CRUSH – The process of reducing the raw, unusable soybean into its two major components, oil and meal.

CRUSH SPREAD – A futures spreading position in which a trader attempts to profit from what he believes to be discrepancies in the price relationship between soybeans and their two derivative products.

 

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DAY ORDER – An order that expires on the close of trading if not filled during that day.

 

DAY TRADING – A purchase and a sale of the same futures during the trading hours of a single day.

DELIVERY NOTICE – A notice of a clearing member’s intentions to deliver a stated quantity of a commodity in settlement of a futures contract.

DISCRETIONARY ACCOUNT - An account in which the customer authorizes another person to make full trading decisions.

 

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FILL OR KILL – An order that must be filled immediately or canceled.

FIRST NOTICE DAY (FND) – The first day on which notice of intentions to deliver actual commodities against futures contracts can be made.

FLOOR BROKER – A member who executes orders for the accounts of other members on the trading floor.

FLOOR TRADER – An exchange member who fills orders for his own account by being personally on the floor. Normally called a "local."

FUTURES COMMISSION MERCHANT (FCM) – An intermediary who stands between the brokers in the pits and the nonmember speculating and hedging public. Every brokerage house must be a futures commission merchant in order to do business with the public.

FUTURES CONTRACT – A firm commitment to make or accept delivery of a specified quantity and quality of a commodity during a specific month in the future at a price agreed upon at the time the commitment was made.

 

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GOOD TILL CANCELED ORDER (GTC) – An open order that remains in force until the customer explicitly cancels the order, until the futures contract expires, or until the order is filled.

 

 

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HEDGE – To use the futures market to reduce the price risks inherent in buying and selling cash commodities. For example, as an elevator operator buys cash grain from farmers, he can hedge his purchases by selling futures contracts; when he sells the cash commodity, he purchases an offsetting number of futures contracts to liquidate his position.

 

HEDGING – The sale of futures contracts in anticipation of future sales of cash commodities as a protection against possible price declines, or the purchase of futures contracts in anticipation of future purchases of cash commodities as a protection against the possibility of increasing costs.

 

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INTERMARKET SPREAD – A spread between commodities that are traded on more than one market. For example, a typical intermarket spread might be made between Chicago wheat and Kansas City wheat.

 

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LAST TRADING DAY (LTD) – The final day in which trading may occur for a particular delivery month. After the last trading day, any remaining commitment must be settled for delivery.

LIMIT ORDER – An order in which the trader sets a limit to the price, as contrasted with a market order on which no limit is set.

LIQUIDATION – The closing out of a previous position by taking an opposite position in the same contract.

LIQUIDITY – The degree to which a given market is liquid.

LONG – A position established by owning the actual commodity unhedged or by purchasing futures.

 

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MARGIN – A good faith deposit a speculator gives to his broker prior to initiating his first trade.

MARGIN CALL – A demand by a broker for additional funds sufficient to raise your deposit on a commodity futures contract above the minimum acceptable level.

MARKET IF TOUCHED (MIT) – An order that may be executed only if the market reaches a specified point. (NOTE: Not all exchanges accept MIT orders.)

MARKET ORDER – An order that is to be filled as soon as possible at the best possible price.

MOVING AVERAGE – A method of smoothing prices to more easily discern market trends.

 

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NEW YORK MERCANTILE EXCHANGE (NYMEX) – Founded in 1872 as a market for cheese, butter, eggs, its principle commodities today include heating oil and petroleum products.

 

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OFFER – An indication of a willingness to sell at a certain price, as opposed to a bid.

 

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OPEN INTEREST – The total number of futures contracts entered into during a specified period of time that have not been liquidated either by offsetting futures transactions or by actual delivery.

OPENING RANGE – Range of closely related prices at which transactions took place at the opening of the market; buying and selling orders at the opening might be filled at any point within such a range.

PIT – The area on an exchange floor where futures trading takes place.

PRICE LIMIT – The maximum price advance or decline from the previous day’s settlement price permitted for a commodity in one trading session by the rules of the exchange.

PYRAMIDING – The practice of using accrued paper profits to margin additional trades.

 

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RALLY – Quick advance in prices following a decline.

RANGE – The difference between the highest and lowest prices recorded during a given trading session, week, month, or year.

RISK CAPITAL – Money which, if lost, would not materially affect one’s living habits or deny one the necessities and comforts of normal life.

 

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SELLING HEDGE – Selling futures contracts to protect against possible decreased prices of commodities which will be sold in the future.

SETTLEMENT PRICE – The price at which the clearing house clears all transactions at the close of the day.

SHAKEOUT – A healthy technical correction of an overbought situation, characterized by a comparatively short but sharp decline in prices.

SHORT – A trader who has sold futures, speculating that prices will decline.

SHORT SQUEEZE – A situation in which futures traders are unable to buy the cash commodity to deliver against their positions, and so are forced to buy offsetting futures at prices much higher than they’d ordinarily be willing to pay.

SPECULATION – Buying or selling in hopes of making a profit.

SPECULATOR – One who is interested in profiting from a price change in a commodity futures contract. Speculators may trade from the floor of an exchange if they are members, or through a broker if they are not.

SPOT DELIVERY MONTH – The nearest delivery month among all those traded at any point in time. The actual contract month represented by the spot delivery month is constantly changing throughout the calendar year as each contract month reaches its last trading day.

SPOT PRICE – The price quoted for the actual commodity same; same as cash commodity price.

SPREAD – The purchase of one futures contract and sale of another, in the expectation that the price relationships between the two will change so that a subsequent offsetting sale and purchase will yield a net profit.

STOP ORDER – A buy order placed above the market (or sell order placed below the market) that becomes a market order when the specified price is reached.

SUPPORT – Any barrier to a price decline.

 

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TOPPING OUT – A term employed to denote loss of upside energy at the top after a long price run-up.

TRADING RANGE – The amount that futures prices can fluctuate during one trading session—essentially, the price "distance" between limit up and limit down.

 

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VOLUME – The number of purchases and sales of a commodity made during a specified period of time.

 

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