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A
Abandon: The act of an
option holder in electing not to exercise or offset
an option.
Accommodation Trading:
Non-competitive trading entered into by a trader, usually
to assist another with illegal trades.
Actuals: The physical
or cash commodity, as distinguished from a commodity
futures contract. The goods or financial instruments
underlying a futures contract. Also see Cash and Spot
Commodity.
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 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. See Differentials.
Approved Delivery Facility:
Any bank, stockyard, mill, storehouse, plant, elevator
or other depository that is authorized by an exchange
for the delivery of commodities tendered on futures
contracts.
Arbitrage: Simultaneous
purchase of cash commodities or futures in one market
against the sale of cash commodities or futures in the
same or a different market to profit from a discrepancy
in prices. The two transactions may take place between
two different exchanges, in different delivery months,
or between the cash and futures markets. Also includes
some aspects of hedging. See Spread, Switch.
Asian Option: An option
whose payoff depends on the average price of the underlying
asset during some portion of the life of the option.
Assignable Contract:
One which allows the holder to convey his rights to
a third party. Exchange-traded contracts are not assignable.
Associated Person: A
person associated with any futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, or leverage transaction merchant as a
partner, officer, employee, consultant, or agent. Also,
any person occupying a similar status or performing
similar functions, in any capacity that involves: (a)
the solicitation or acceptance of customers' orders,
discretionary accounts, or participation in a commodity
pool (other than in a clerical capacity); or (b) the
supervision of any person or persons so engaged.
At-the-Market: An order
to buy or sell a futures contract at whatever price
is obtainable when the order reaches the trading floor
or computer at an electronic exchange. Also called a
Market Order.
At-the-Money: When an
option's exercise price is the same as the current trading
price of the underlying futures, the option is at-the-money.
Audit Trail: The record
of trading information identifying, for example, the
brokers participating in each transaction, the firms
clearing the trade, the terms and time of the trade,
and, ultimately, and when applicable, the customers
involved.
ACCOUNT EXECUTIVE
The agent of a commission house who serves
customers/traders by entering their commodity futures
and options orders, reporting trade executions, advising
on trading strategies, etc.
ACTIVE MONTH
In the metals markets, the nearest cycle contract
month that is not the current delivery month. The cycle
months for each metals futures contract are defined
by
each individual contract.
ACTUALS
Physical cash commodities as opposed to futures
contracts.
ADMINISTRATIVE WORKSTATION
A NYMEX ACCESS® workstation through which
Exchange clearing members monitor all activity in
accounts they carry and set limits on their customers’
accounts through the Trade Limit Monitoring System.
ALL-OR-NONE
An order which must be filled in its entirety or not
at all.
ALTERNATIVE DELIVERY PROCEDURE (ADP)
A provision of a futures contract that allows buyers
and sellers to make and take delivery under terms or
conditions that differ from those prescribed in the
contract.
An ADP may occur at any time during the delivery
period, after long and short futures positions have
been
matched by the Exchange for the purpose of delivery.
AMERICAN GAS ASSOCIATION (AGA)
Major natural gas industry trade association,
based in Washington, DC. AGA conducts technical
research and helps create standards for equipment and
products involved in every facet of the natural gas
industry.
It also compiles statistics which are considered
industry standards.
AMERICAN OPTION
An options contract that may be exercised at any
time prior to expiration. This differs from a “European
option,” which may only be exercised on the expiration
date. The Exchange options contracts are “American.”
AMERICAN PETROLEUM INSTITUTE (API)
The primary U.S. oil industry trade association,
based in Washington, D.C. API conducts research and
sets technical standards for industry equipment and
products from wellhead to retail outlet. It also compiles
statistics which are regarded as industry benchmarks.
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AMERICAN SOCIETY FOR TESTING MATERIALS (ASTM)
Grade and quality specifications for petroleum
products and metals are determined by the ASTM in test
methods.
ANTHRACITE
Sometimes called hard coal, it has the highest
energy content of all coals, and is generally mined
in the
Appalachian region of Pennsylvania.
API GRAVITY
Gravity (weight per unit volume) of oils as measured
by the API scale whereby:
API Gravity = 141.5
specific gravity at 60o F
APPROVED CARRIERS
Armored carriers approved by the Exchange for
the transportation of gold, platinum, and palladium.
ARBITRAGE
The simultaneous purchase of one commodity
against the sale of another in order to profit from
fluctuations
in the usual price relationships. Variations include
the simultaneous purchase and sale of different delivery
months of the same commodity; of the same delivery
month, but different grades of the same commodity; and
of different commodities.
ASK
A motion to sell. The same as offer.
ASSAY
To test a metal or an oil for purity or quality.
ASSIGNMENT
The process by which the seller of an options
contract is notified of a buyer’s intention to
exercise the
rights associated with the option.
ASSOCIATED GAS
Natural gas present in a crude oil reservoir, either
separate from or in solution with the oil.
AT-THE-MARKET
An order to buy or sell a futures contract at whatever
price is obtainable when the order reaches the trading
floor. Also called a market order.
AT-THE-MONEY
An option whose exercise, or strike, price is closest
to the futures price.
AVOIRDUPOIS UNIT
Customary U.S. weights. 1 troy ounce = 1.09
ounces avoirdupois.
– 131.5
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AUTOMATIC EXERCISE
Following options expiration, an option which is
in-the-money by $100 or more is exercised automatically
by the clearinghouse, unless the holder of the option
submits specific instructions to the contrary.
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B
Back Months: Those futures
delivery months with expiration or delivery dates furthest
into the future; futures delivery months other than
the spot or nearby delivery month.
Backpricing: Fixing the
price of a commodity for which the commitment to purchase
has been made in advance. The buyer can fix the price
relative to any monthly or periodic delivery using the
futures markets.
Backwardation: Market
situation in which futures prices are progressively
lower in the distant delivery months. For instance,
if the gold quotation for February is $160.00 per ounce
and that for June is $155.00 per ounce, the backwardation
for four months against January is $5.00 per ounce.
(Backwardation is the opposite of contango). See Inverted
Market.
Banker's Acceptance:
A draft or bill of exchange accepted by a bank where
the accepting institution guarantees payment. Used extensively
in foreign trade transactions.
Basis: The difference
between the spot or cash price of a commodity and the
price of the nearest futures contract for the same or
a related commodity. Basis is usually computed in relation
to the futures contract next to expire and may reflect
different time periods, product forms, qualities, or
locations. CASH – FUTURES = BASIS.
Basis Grade: The grade
of a commodity used as the standard or par grade of
a futures contract.
Basis Point: The measurement
of a change in the yield of a debt security. One basis
point equals 1/100 of one percent.
Basis Quote: Offer or
sale of a cash commodity in terms of the difference
above or below a futures price (e.g., 10 cents over
December corn).
Basis Risk: The risk
associated with an unexpected widening or narrowing
of basis between the time a hedge position is established
and the time that it is lifted.
Bear: One who expects
a decline in prices. The opposite of a "bull."
A news item is considered bearish if it is expected
to result in lower prices.
Bear Market: A market
in which prices are declining.
Bear Spread: The simultaneous
purchase and sale of two futures contracts in the same
or related commodities with the intention of profiting
from a decline in prices but at the same time limiting
the potential loss if this expectation does not materialize.
In agricultural products, this is accomplished by selling
a nearby delivery and buying a deferred delivery.
Bear Vertical Spread:
A strategy employed when an investor expects a decline
in a futures price but at the same time seeks to limit
the potential loss if this expectation is not realized.
This spread requires the simultaneous purchase and sale
of options of the same class and expiration date but
different strike prices. For example, if call options
are spread, the purchased option must have a higher
exercise price than option that is sold.
Beta (Beta Coefficient):
A measure of the variability of rate of return or value
of a stock or portfolio compared to that of the overall
market. Also, a measure correlating stock price movement
to the movement of an index. Beta is used to determine
the number of contracts required to hedge with stock
index futures or options on futures.
Bid: An offer to buy
a specific quantity of futures contracts at a stated
price.
Blackboard Trading: The
practice of selling commodities from a blackboard on
a wall of a futures exchange.
Black-Scholes Model:
An option pricing formula initially developed by F.
Black and M. Scholes for securities options and later
refined by Black for options on futures.
Board Broker System:
A system of trading in which an individual member of
an exchange (or a nominee of the member) is designated
as a Board Broker for a particular futures with the
responsibility of executing orders left with him by
other members on the floor, providing price quotations,
and maintaining orderliness in the trading crowd. A
Board Broker may not trade for his own account or the
account of an affiliated organization. Also See Free
Crowd Systems and Specialist System.
Board Order: See Market-if-Touched
Order.
Board of Trade: Any exchange
or association, whether incorporated or unincorporated,
of persons who are engaged in the business of buying
or selling any futures or commodity, or receiving the
same for sale on consignment.
Boiler Room: An enterprise
which often is operated out of inexpensive, low-rent
quarters (hence the term "boiler room") that
uses high pressure sales tactics (generally over the
telephone) and possibly false or misleading information
to solicit generally unsophisticated investors.
Book: The collection
of unfilled orders residing on a computer at an electronic
trading exchange.
Booking the Basis: A
forward pricing sales arrangement in which the cash
price is determined either by the buyer or seller within
a specified time. At that time, the previously-agreed
basis is applied to the then-current futures quotation.
Book Transfer: A series
of accounting or bookkeeping entries used to settle
a series of cash market transactions.
Box Transaction: An option
position in which the holder establishes a long call
and a short put at one strike price and a short call
and a long put at another strike price, all of which
are in the same contract month in the same futures.
Break: A rapid and sharp
price decline.
Broker: A person paid
a fee or commission for executing buy or sell orders
for a customer. In futures trading, the term may refer
to: (1) Floor Broker--a person who actually executes
orders on the trading floor of an exchange; (2) Account
Executive, Associated Person, registered Commodity Representative
or Customer's Man--the person who deals with customers
in the offices of futures commission merchants; or (3)
the Futures Commission Merchant.
Broker Association: Two
or more exchange members who (1) share responsibility
for executing customer orders; (2) have access to each
other's unfilled customer orders as a result of common
employment or other types of relationships; or (3) share
profits or losses associated with their brokerage or
trading activity.
Bucketing: Directly or
indirectly taking the opposite side of a customer's
order into a broker's own account or into an account
in which a broker has an interest, without open and
competitive execution of the order on an exchange.
Bucket Shop: A brokerage
enterprise which "books" (i.e., takes the
opposite side of) a customer's order without actually
having it executed on an exchange.
Bulge: A rapid advance
in prices.
Bull: One who expects
a rise in prices. The opposite of "bear."
A news item is considered bullish if it portends higher
prices.
Bullion: Bars or ingots
of precious metals, usually cast in standardized sizes.
Bull Market: A market
in which prices are rising.
Bull Spread: The simultaneous
purchase and sale of two futures contracts in the same
or related commodities with the intention of profiting
from a rise in prices but at the same time limiting
the potential loss if this expectation is wrong. In
agricultural commodities, this is accomplished by buying
the nearby delivery and selling the deferred. One type
of bull spread, the limited risk spread, is placed only
when the market is near full carrying charges. See Limited
Risk Spread.
Bull Vertical Spread:
A strategy used when an investor expects that the price
of a futures will go up but at the same time seeks to
limit the potential loss should this judgment be in
error. This strategy involves the simultaneous purchase
and sale of options of the same class and expiration
date but different strike prices. For example, if call
options are spread, the purchased option must have a
lower exercise or strike price than the sold option.
Buoyant: A market in
which prices have a tendency to rise easily with a considerable
show of strength.
Butterfly Spread: A three-legged
spread in futures or options. In the option spread,
the options have the same expiration date but differ
in strike prices. For example, a butterfly spread in
soybean call options might consist of two short calls
at a $6.00 strike price, one long call at a $6.50 strike
price, and one long call at a $5.50 strike price.
Buyer: A market participant
who takes a long futures position or buys an option.
An option buyer is also called a taker, holder, or owner.
Buyer's Call: See Call.
Buyer's Market: A condition
of the market in which there is an abundance of goods
available and hence buyers can afford to be selective
and may be able to buy at less than the price that previously
prevailed. See Seller's Market.
Buying Hedge (or Long
Hedge): Hedging transaction in which futures contracts
are bought to protect against possible increases in
the cost of commodities. See Hedging.
Buy (or Sell) On Close:
To buy (or sell) at the end of the trading session within
the closing price range.
Buy (or Sell) On Opening:
To buy (or sell) at the beginning of a trading session
within he open price range.
BACK MONTHS
Contract months that are further out in time are
collectively referred to as back months. See Front
Months for comparison.
BACKWARDATION
Market situation in which futures prices are lower
in each succeeding delivery month. Also known as an
inverted market. The opposite of contango.
BANKER’S ACCEPTANCE
A draft or bill of exchange accepted by a bank;
payment is guaranteed by the accepting institution.
BARGE
A vessel, either motorized or towed, used to carry
products in navigable waterways. Inland river barges
that
carry oil products generally hold 25,000 barrels. Oceangoing
barges range in size up to 120,000 barrels.
BARREL
A unit of volume measure used for petroleum and
refined products. 1 barrel = 42 U.S. gallons.
BASE METAL
Copper, aluminum, lead, nickel, and tin.
BASELOAD
The minimum amount of electric power delivered
or required over a given period of time at a steady
rate.
BASELOAD CAPACITY
Electric generating equipment normally operated
to serve loads on an around-the-clock basis.
BASIS
The differential that exists at any time between the
cash, or spot, price of a given commodity and the price
of the nearest futures contract for the same or a related
commodity. Basis may reflect different time periods,
product forms, qualities, or locations. Cash minus futures
equals basis.
BASIS RISK
The uncertainty as to whether the cash-futures
spread will widen or narrow between the time a hedge
position is implemented and liquidated.
BATCH
A measured amount in which crude oil and refined
product shipments are sent through a pipeline.
BATCHING SEQUENCE
The order in which shipments are sent through a
pipeline.
BCF
Billion cubic feet.
B/D
Barrels per Day. Usually used to quantify a
refiner’s output capacity or an oilfield’s
rate of flow.
BEAR
One who anticipates a decline in price or volatility.
Opposite of a bull.
BEAR MARKET
Market in which prices are in a declining trend.
BEAR SPREAD
1) The simultaneous purchase and sale of two
futures contracts in the same or related commodities
with
the intention of profiting from a decline in prices
but, at
the same time, limiting the potential loss if this expectation
is wrong. This can usually be accomplished by selling
a nearby delivery and buying a deferred delivery.
2) A delta-negative options position composed of
long and short options of the same type, either calls
or
puts, designed to be profitable in a declining market.
An
options contract with a lower strike price is sold and
one
with a higher strike price is bought.
BID
A motion to buy a futures or options contract at a
specified price. Opposite of offer.
BITUMINOUS
Sometimes called “soft” coal, it has a higher
heating
value than subbituminous and is the most commonly
used coal for electric power generation in the United
States. It is mined chiefly in Appalachia and the
Midwest.
BLACK-SCHOLES MODEL
An options pricing formula initially derived by
Fisher Black and Myron Scholes for securities options
and later refined by Mr. Black for options on futures.
BOILER ROOM
An enterprise which often is operated out of inexpensive,
low-rent quarters that uses high pressure sales
tactics, generally over the telephone, and possibly
false
or misleading information to solicit generally unsophisticated
investors.
BOOK TRANSFER
Transfer of title without actually delivering the
product.
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BOTTOM SEDIMENT AND WATER (BS&W)
Often found in crude oil and residual fuel.
BOX SPREAD
An options market arbitrage in which both a bull
spread and a bear spread are established for a risk-free
profit. One spread includes put options and the other
includes calls.
BRAND
Insignia identifying the producer of a specific
commodity.
BREAK
A rapid and sharp price decline.
BREAKEVEN POINT
The underlying futures price at which a given
options strategy is neither profitable nor unprofitable.
For
call options, it is the strike price plus the premium.
For
put options, it is the strike price minus the premium.
BRITISH THERMAL UNIT (BTU)
The amount of heat required to increase the temperature
of one pound of water one-degree Fahrenheit.
A Btu is used as a common measure of heating value for
different fuels. Prices of different fuels and their
units of
measure (dollars per barrel of crude, dollars per ton
of
coal, cents per gallon of gasoline, dollars per thousand
cubic feet of natural gas) can be easily compared when
expressed as dollars and cents per million Btus.
BROKER
1) An individual who is paid a fee or commission
for acting as an agent in making contracts, sales, or
purchases.
2) A floor broker is a person who actually executes
trading orders on the floor of an exchange. 3) An
account executive, registered commodity representative,
or customers’ man who deals with customers and
their
orders in commission house offices. See also Futures
Commission Merchant, Introducing Broker.
BTU
See British thermal unit.
BULGE
A rapid advance in futures prices.
BULL
One who anticipates an increase in price or
volatility. Opposite of a bear.
BULLION
Precious metals cast into bars or other uncoined
form.
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BULLION COIN
A precious metal coin whose market value is
determined by its inherent precious metal content. They
are bought and sold mainly for investment purposes.
BULL MARKET
Market in which prices are in an upward trend.
BULL SPREAD
1) The simultaneous purchase and sale of two
futures contracts in the same or related commodities
with
the intention of profiting from a rise in prices but,
at the
same time, limiting the potential loss if this expectation
is
wrong. This can be accomplished by buying the nearby
delivery and selling the deferred. 2) A delta-positive
options position composed of both long and short
options of the same type, either calls or puts, designed
to
be profitable in a rising market. An options contract
with
a lower strike price is bought and one with a higher
strike
price is sold.
BUNDLE
A stack of copper cathodes strapped together for
shipping.
BUNKER C FUEL OIL (OR BUNKERING FUEL)
Fuel used for ships. Generally refers to a No. 6
grade of residual fuel oil with an API gravity about
10.5
degrees.
BUSINESS DAY
For electric utilities, as determined by the North
American Electric Reliability Council (NERC), the business
day typically begins at 6 A.M. (the hour ending
0700) for a 24-hour period. Holidays are also determined
by NERC and are separate from U.S.-designated holidays.
For futures and options contracts, business days
are trading days as determined by the Exchange board
prior to the start of the year.
BUYERS’ MARKET
A condition of the market in which there is an
abundance of goods available and hence buyers can
afford to be selective and may be able to buy at less
than
the price that previously prevailed. See sellers’
market.
BUYING HEDGE
Also called a long hedge. Buying futures contracts
to protect against possible increased costs of commodities
that will be needed in the future.
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C
C & F: "Cost
and Freight" paid to a point of destination and
included in the price quoted. Same as C.A.F.
Call: (1) A period at
the opening and the close of some futures markets in
which the price for each futures contract is established
by auction; (2) Buyer's Call generally applies to cotton,
also called "call sale." A purchase of a specified
quantity of a specific grade of a commodity at a fixed
number of points above or below a specified delivery
month futures price with the buyer allowed a period
of time to fix the price either by purchasing a futures
for the account of the seller or telling the seller
when he wishes to fix the price; (3) Seller's Call,
also called "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; (4) option contract
giving the buyer the right but not the obligation to
purchase the underlying or to enter into a long futures
position; and (5) the requirement that a financial instrument
be returned to the issuer prior to maturity, with principal
and accrued interest paid off upon return.
Call Cotton: Cotton bought
or sold on call. See Call.
Called: Another term
for "exercised" when the option is a call.
The writer of a call must deliver the indicated underlying
when the option is exercised or called.
Call Option: A contract
that entitles the buyer/taker to buy a fixed quantity
of the underlying commodity or financial instrument
at a stipulated basis or striking price at any time
up to the expiration of the option. The buyer pays a
premium to the seller/grantor for this contract. A call
option is bought with the expectation of a rise in prices.
See Put Option.
Call Rule: An exchange
regulation under which an official bid price for a cash
commodity is competitively established at the close
of each day's trading. It holds until the next opening
of the exchange.
Capping: Effecting commodity
or security transactions shortly prior to an option's
expiration date depressing or preventing a rise in the
price of the commodity or security so that previously
written call options will expire worthless and the premium
the writer received will be protected.
Carrying Broker: A member
of a futures exchange, usually a futures commission
merchant, through whom another broker or customer elects
to clear all or part of its trades.
Carrying Charges: Cost
of storing a physical commodity or holding a financial
instrument over a period of time. Includes insurance,
storage, and interest on the invested funds as well
as other incidental costs. It is a carrying charge market
when there are higher futures prices for each successive
contract maturity. If the carrying charge is adequate
to reimburse the holder, it is called a "full charge."
Carrying costs usually are reflected in the difference
between the futures prices for different delivery months.
Also see Negative Carry, Positive Carry and Contango.
Cash Commodity: The physical
or actual commodity as distinguished from the futures
contract which calls for the delivery of the “cash
commodity” during the delivery period. Sometimes
called Spot Commodity or Actuals.
Cash Forward Sale: See
Forward Contracting.
Cash Market: The market
for the cash commodity (as contrasted to a futures contract),
taking the form of: (1) an organized, self-regulated
central market (e.g., a futures exchange); (2) a decentralized
over-the-counter market; or (3) a local organization,
such as a grain elevator or meat processor, which provides
a market for a small region.
Cash Price: The price
in the marketplace for actual cash or spot commodities
to be delivered via customary market channels.
Cash Settlement: A method
of settling certain futures or option contracts whereby
the seller (or short) pays the buyer (or long) the cash
value of the underlying vehicle traded according to
a procedure specified in the contract.
CCC: See Commodity Credit
Corporation.
CD: See Certificate of
Deposit.
CEA: See Commodity Exchange
Authority.
Certificate of Deposit
(CD): A time deposit with a specific maturity evidenced
by a certificate. Large-denomination CDS are typically
negotiable.
CFTC: See Commodity Futures
Trading Commission.
CFO: Cancel Former Order.
Certificated or Certified
Stocks: Stocks of a commodity that have been inspected
and found to be of a quality deliverable against futures
contracts, stored at the delivery points designated
as regular or acceptable for delivery by a commodity
exchange. In grain, called "stocks in deliverable
position." See Deliverable Stocks.
Changer: A clearing member
of both the Mid-America Commodity Exchange (MCE) and
another futures exchange who, for a fee, will assume
the opposite side of a transaction on the MCE by taking
a spread position between the MCE and another futures
exchange which trades an identical, but larger, contract.
Through this service, the changer provides liquidity
for the MCE and an economical mechanism for arbitrage
between the two markets.
Charting: The use of
graphs and charts in the technical analysis of futures
markets to plot trends of price movements, average movements
of price, volume of trading and open interest. See Technical
Analysis.
Chartist: Technical trader
who reacts to signals derived from graphs of price movements.
Cheapest-to-Deliver:
Usually refers to the selection of bonds deliverable
against an expiring bond futures contract.
Chooser Option: An option
which is transacted in the present but which at some
prespecified future date is chosen to be either a put
or a call option.
Churning: Excessive trading
of an account by a broker with control of the account
for the purpose of generating commissions while disregarding
the interests of the customer.
Circuit Breakers: A system
of trading halts and price limits on equities and derivative
markets designed to provide a cooling-off period during
large, intraday market movements. The first known use
of the term circuit breaker in this context was in the
Report of the Presidential Task Force on Market Mechanisms
(January 1988), which recommended that circuit breakers
be adopted following the market break of October 1987.
C.I.F.: Cost, insurance
and freight paid to a point of destination and included
in the price quoted.
Class (of options): Options
of the same type (i.e., either puts or calls, but not
both) covering the same underlying futures contract
or physical commodity (e.g., a March call with a strike
price of 62 and a May call with a strike price of 58).
Clearing: The procedure
through which the clearing house or association becomes
the buyer to each seller of a futures contract, and
the seller to each buyer, and assumes responsibility
for protecting buyers and sellers from financial loss
by assuring performance on each contract.
Clearing House or Clearinghouse:
An adjunct to, or division of, a commodity exchange
through which transactions executed electronically or
on the floor of the exchange are settled. Also charged
with assuring the proper conduct of the exchange's delivery
procedures and the adequate financing of the trading.
Also, an agency associated with an exchange which guarantees
all trades, thus assuring contract delivery, or financial
settlement as the case may be. The clearinghouse becomes
the buyer for every seller and the seller for every
buyer.
Clearing Member: A member
of the Clearing House or Association. All trades of
a non-clearing member must be registered and eventually
settled through a clearing member.
Clearing Price: See Settlement
Price.
Close, The: The period
at the end of the trading session, officially designated
by the exchange, during which all transactions are considered
made "at the close." Also see Call.
Closing-Out: Liquidating
an existing long or short futures or option position
with an equal and opposite transaction. Also known as
Offset.
Closing Price (or Range):
The price (or price range) recorded during trading that
takes place in the final moments of a day's activity
that is officially designated as the "close."
Combination: Puts and
calls held either long or short with different strike
prices and expirations.
Commercial: An entity
involved in the production, processing, or merchandising
of a commodity or financial instrument.
Commercial Grain Stocks:
Domestic grain in store in public and private elevators
at important markets and grain afloat in vessels or
barges in lake and seaboard ports.
Commercial Paper: Short-term
promissory notes issued in bearer form by large corporations,
with maturities ranging from 5 to 270 days. Since the
notes are unsecured, the commercial papers market generally
is dominated by large corporations with impeccable credit
ratings.
Commission: (1) The charge
made by a commission house for buying and selling commodities;
(2) The fee that brokers charge their clients; (3) the
CFTC.
Commitments: See Open
Interest.
Commodity: A good or
item of trade or commerce. Goods tradable on an exchange,
such as corn, gold, or hogs, as distinguished from instruments
or other intangibles like T-Bills or stock indexes.
Commodity Credit Corporation:
A government-owned corporation established in 1933 to
assist American agriculture. Major operations include
price support programs, foreign sales, and export credit
programs for agricultural commodities.
Commodity Exchange Authority:
A regulatory agency of the U.S. Department of Agriculture
established to administer the Commodity Exchange Act
prior to 1975; the predecessor of the Commodity Futures
Trading Commission.
Commodity Exchange Commission:
A commission consisting of the Secretary of Agriculture,
Secretary of Commerce, and the Attorney General, responsible
for administering the Commodity Exchange Act prior to
1975.
Commodity Futures Trading
Commission (CFTC): The Federal regulatory agency established
by the CFTC Act of 1974 to administer the Commodity
Exchange Act. The CFTC has exclusive jurisdiction over
all futures trading, futures exchanges, futures commission
merchants and their agents, floor brokers, and traders.
Commodity-Linked Bond:
A bond in which payment to the investor is dependent
on the price level of such commodities as crude oil,
gold, or silver at maturity.
Commodity Option: See
Option, Puts and Calls.
Commodity Pool: An investment
trust, syndicate or similar form of enterprise operated
for the purpose of trading futures or option contracts.
Commodity Pool Operator
(CPO): Individuals or firms in businesses similar to
investment trusts or syndicates that solicit or accept
funds, securities or property for the purpose of trading
futures contracts or futures options.
Commodity Price Index:
Index or average, which may be weighted, of selected
commodity prices, intended to be representative of the
markets in general or a specific subset of commodities
(for example, grains or livestock).
Commodity Product Spread:
The simultaneous purchase (or sale) of a commodity and
the sale (or purchase) of the products of that commodity.
An example would be buying soybeans and selling soybean
oil and meal (see Crush). Another example would be the
purchasing crude oil and selling unleaded gasoline and
heating oil (see Crack).
Commodity Trading Advisor
(CTA): Individuals or firms that, for pay, issue analyses
or reports concerning commodities, including the advisability
of trading in futures or options.
Congestion: (1) A market
situation in which shorts attempting to cover their
positions are unable to find an adequate supply of contracts
provided by longs willing to liquidate or by new sellers
willing to enter the market, except at sharply higher
prices; (2) in technical analysis, a period of time
characterized by repetitious and limited price fluctuations.
Consignment: A shipment
made by a producer or dealer to an agent elsewhere with
the understanding that the commodities in question will
be cared for or sold at the highest obtainable price.
Title to the merchandise shipped on consignment rests
with the shipper until the goods are disposed of according
to agreement.
Contango: Market situation
in which prices in succeeding delivery months are progressively
higher than in the nearest delivery month; the opposite
of "backwardation."
Contract: (1) A term
of reference describing a unit of trading for a futures
or option; (2) A legally enforceable agreement between
two or more parties to buy or sell a specified commodity,
detailing the amount and grade of the product and the
date on which the contract will mature and become deliverable.
Contract Grades: Those
grades of a commodity which have been officially approved
by an exchange as deliverable in settlement of a futures
contract.
Contract Market: (1)
A board of trade or exchange designated by the Commodity
Futures Trading Commission to trade futures or options
under the Commodity Exchange Act; (2) Sometimes the
futures contract itself (e.g., corn is a contract market).
Contract Month: See Delivery
Month.
Contract Unit: The actual
amount of a futures represented in a contract.
Contrarian Theory: A
theory suggesting that the general consensus about trends
is wrong. The contrarian takes an opposite position
from the majority opinion to capitalize on overbought
or oversold situations.
Controlled Account: Any
account for which trading is directed by someone other
than the owner. Also called a Managed Account or a Discretionary
Account.
Convergence: The tendency
for prices of physicals and futures to approach one
another, usually during the delivery month. Also called
a "narrowing of the basis."
Conversion: When trading
options on futures contracts, a position created by
selling a call option, buying a put option, and buying
the underlying futures contract, where the options have
the same strike price and the same expiration. Also,
for an investor who is long the physical and short synthetic
futures, conversion is the sale of a cash position and
investment of part of the proceeds in the margin for
a long futures position. The remaining money is placed
in an interest-bearing instrument. This practice allows
the investor/dealer to receive high rates of interest
and take delivery of the underlying if needed.
Conversion Factor: A
figure published by the CBOT used to adjust a T-Bond
hedge for the difference in maturity between the T-Bond
contract specifications and the T-Bonds being hedged.
Corner: (1) Securing
such relative control of a commodity or security that
its price can be manipulated; (2) In the extreme situation,
obtaining contracts requiring the delivery of more commodities
or securities than are available for delivery.
Corn-Hog Ratio: See Feed
Ratio.
Cost of Tender: Total
of various charges incurred when a commodity is certified
and delivered on a futures contract.
Counter-Trend Trading:
In technical analysis, the method by which a trader
takes a position contrary to the current market direction
in anticipation of a change in that direction.
Coupon (Coupon Rate):
A fixed dollar amount of interest payable per annum,
stated as a percentage of principal value, usually payable
in semiannual installments.
Cover: (1) Purchasing
futures to offset a short position. Same as Short Covering.
See Offset, Liquidation; (2) To have in hand the physical
commodity or instrument when a short futures or leverage
sale is made, or to acquire the commodity or instrument
that might be deliverable on a short sale.
Covered Option: A short
call or put option position which is covered by the
sale or purchase of the underlying futures contract
or physical commodity. For example, in the case of options
on futures contracts, a covered call is a short call
position combined with a long futures position. A covered
put is a short put position combined with a short futures
position.
Covered Position: A transaction
which has been offset with an opposite and equal transaction
for example, if a gold futures contract had been purchased
and later a call option for the same commodity amount
and delivery date was sold, the trader’s option
position is “covered.” He holds the futures
contract deliverable on the option if it is exercised.
Also used to indicate the repurchase of previously sold
contracts as in “he covered his short position."
Cox-Ross-Rubinstein Option
Pricing Model: An option pricing logarithm developed
by J. Cox, S. Ross and M. Rubinstein which can be adopted
to include effects not included in the Black-Scholes
model (e.g., early exercise and price supports).
CPO: See Commodity Pool
Operator.
Crack or Crack Spread:
In energy futures, the simultaneous purchase of crude
oil futures and the sale of petroleum product futures
to establish a refining margin. See Gross Processing
Margin.
Crop Year: The time period
from one harvest to the next, varying according to the
commodity (i.e., July 1 to June 30 for wheat; September
1 to August 31 for soybeans).
Cross-Hedge: Hedging
a cash market position in a futures contract for a different
but price-related instrument.
Cross-Margining: A procedure
for margining related securities, options, and futures
contracts jointly when different clearing houses clear
each side of the position.
Cross-Rate: In foreign
exchange, the price of one currency in terms of another
currency in the market of a third country. For example,
a London dollar cross-rate could be the price of one
U.S. dollar in terms of deutsche marks on the London
market.
Cross Trading: Offsetting or noncompetitive match of
the buy order of one customer against the sell order
of another, a practice that is permissible only when
executed in accordance with the Commodity Exchange Act,
CFTC regulations, and rules of the contract market.
Crush or Crush Spread:
In the soybean futures market, the simultaneous purchase
of soybean futures and the sale of soybean meal and
soybean oil futures to establish a processing margin.
See Gross Processing Margin.
CTA: See Commodity Trading
Advisor.
CTI Codes: Customer Type
Indicator codes. These consist of four identifiers which
describe transactions by the type of customer for which
a trade is effected.. The four codes are: (1) trading
for the member's own account; (2) trading for a proprietary
account of the clearing member's firm; (3) trading for
another member who is currently present on the trading
floor or for an account controlled by such other member;
and (4) trading for any other type of customer. Transaction
data classified by the above codes are included in the
trade register report produced by a clearing organization.
Curb Trading: Trading
by telephone or by other means that takes place after
the official market has closed. Originally it took place
in the street on the curb outside the market. Under
CFTC rules, curb trading is illegal. Also known as kerb
trading.
Current Delivery Month:
The futures contract which matures and becomes deliverable
during the present month. Also called Spot Month.
Cyberspace: The electronic
bits and bytes on a computer that comprise data which
are a stored recording of information on a computer.
Electronic exchanges, enable entering, tracking and
fulfillment of orders via computer.
CALENDAR SPREAD
An options position composed of the purchase
and sale of two options contracts of the same type that
have the same strike prices but different expiration
dates.
Also known as a horizontal, or time spread.
7
CALL OPTION
An option that gives the buyer (holder) the right,
but not the obligation, to buy a futures contract (enter
into a long futures position) for a specified price
within a
specified period of time in exchange for a one-time
premium
payment. It obligates the seller (writer) of an option
to sell the underlying futures contract (enter into
a short
futures position) at the designated price, should the
option be exercised at that price.
CANDLESTICK CHARTING
A technical analysis charting technique indicating
the range of a day’s prices and illustrating the
overall
movement of the market. The chart that results tends
to
resemble a row of candlesticks.
CAP
A supply contract between a buyer and a seller,
whereby the buyer is assured that he will not have to
pay
more than a given maximum price. This type of contract
is analogous to a call option.
CAPACITY
In general, the maximum volume of liquid or gas
that can be pumped through a pipeline, or the maximum
load that a generating unit or station can carry under
specified conditions for a given period of time, or
the
total storage space or volume of a warehouse or storage
container or tank farm.
CARRY MARKET
A market situation in which prices are higher in
the succeeding delivery months than in the nearest delivery
month. Also known as contango, it is the opposite of
backwardation.
CARRYING CHARGE
The total cost of storing a physical commodity
over a period of time. Includes storage charges, insurance,
interest, and opportunity costs.
CASH COMMODITY
The actual physical commodity. Sometimes
called a spot commodity or actuals.
CASH MARKET
The market for a cash commodity where the
actual physical product is traded.
CASH-SETTLED
Futures contracts that are settled in cash without
the option to deliver the underlying commodity.
8
9
CASINGHEAD GAS
Gas present in an oil well that is removed when it
flows to the surface at the well’s casing.
CATHODE
A flat rectangular piece of metal which has been
refined by electrolysis. Copper is commonly traded and
delivered in this form.
CENTRAL BANK
A national bank that operates to establish monetary
and fiscal policy and to control the money supply
and interest rates. In the Unitited States, the Federal
Reserve Board is often referred to as the central bank.
CETANE NUMBER
A measure of the ignitability of diesel fuel. Diesel
fuel generally has to meet a cetane number specification
of 40. As a measure of performance, the cetane number
serves a similar purpose to the octane number of gasoline.
CUBIC FEET PER DAY (CF/D)
Usually used to quantify the rate of flow of a gas
well or pipeline.
CFTC
See Commodity Futures Trading Commission.
CHARTING
The use of graphs and charts in the analysis of
market behavior, so as to plot trends of price movements,
average movements of price, volume, and open
interest, in the hope that such graphs and charts will
help
one to anticipate and profit from price trends. Contrasts
with fundamental analysis. (See Candlestick Charting)
COST, INSURANCE, FREIGHT (CIF)
Term refers to a sale in which the buyer agrees to
pay a unit price that includes the free on board (FOB)
value at the port of origin plus all costs of insurance
and
transportation. This type of transaction differs from
a
“delivered” agreement in that it is generally
ex-duty, and
the buyer accepts the quantity and quality at the loading
port rather than paying for quality and quantity as
determined
at the unloading port. Risk and title are transferred
from the seller to the buyer at the loading port, although
the seller is obliged to provide insurance in a transferable
policy at the time of loading.
CITY GATE
Generally refers to the location at which gas
changes ownership or transportation responsibility from
a
pipeline to a local distribution company or gas utility.
10
CLASS OF OPTIONS
All call options, or all put options, exercisable for
the same underlying futures contract and which expire
on
the same expiration date.
CLASS OF SERVICE
A utility’s sales categories such as residential,
commercial, industrial, other, and sales for resale.
CLEAN CARGO
Refined products such as kerosene, gasoline,
home heating oil, and jet fuel carried by tankers, barges,
and tank cars. All refined products except bunker fuels,
residual fuel oil, asphalt, and coke.
CLEARING
The registration and settlement of a trade that
includes provisions for margin requirement and performance
guarantee.
CLEARING MEMBER
Clearing members of the New York Mercantile
Exchange accept responsibility for all trades cleared
through them, and share secondary responsibility for
the
liquidity of the Exchange’s clearing operation.
They earn
commissions for clearing their customers’ trades,
and
enjoy special margin privileges. Original margin requirements
for clearing members are lower than for non-clearing
members and customers, and clearing members may
use letters of credit posted with the clearinghouse
as
original margin for customer accounts as well as for
their
own trades. Clearing members must meet a minimum
capital requirement.
CLEARINGHOUSE
An Exchange-associated body charged with the
function of insuring the financial integrity of each
trade.
Orders are “cleared” by means of the clearinghouse
acting
as the buyer to all sellers and the seller to all buyers.
CLOSE
A period defined by the Exchange and occurring
at the end of each trading session wherein any transactions
are considered to be made “at the close.”
CLOSING RANGE
A range of prices at which transactions took place
at the closing of the market; buying and selling orders
during the closing period might have been filled at
any
point within such a range.
COGENERATOR
A generating facility that produces electricity and
another form of useful thermal energy (such as heat
or
steam), used for industrial, commercial, heating, or
cooling
purposes.
COLLAR
A supply contract between a buyer and seller of a
commodity, whereby the buyer is assured that he will
not
have to pay more than some maximum price, and
whereby the seller is assured of receiving some minimum
price. This is analogous to an options fence, also known
as a range forward.
COMBINATION UTILITY
A utility which provides both gas and electric service.
COMMISSION
The fee charged by a futures broker for the execution
of an order.
COMMISSION HOUSE
An organization that trades commodities and/or
futures and options contracts for customer accounts
in
return for a fee.
COMMISSION MERCHANT
One who makes a trade, either for another member
of an exchange or for a non-member client, but who
makes the trade in his own name and becomes liable as
principal to the other.
COMMITMENT OR OPEN INTEREST
The number of open or outstanding contracts for
which an individual or entity is obligated to the Exchange
because that individual or entity has not yet made an
offsetting
sale or purchase, an actual contract delivery, or, in
the case of options, exercised the option.
COMMODITY
As defined by the Commodity Futures Trading
Commission, specifically enumerated agricultural commodities,
all other goods and articles, except onions, and
all services, rights, and interests in which contracts
for
future delivery are presently, or in the future may
be,
dealt.
COMMODITY FUTURES TRADING COMMISSION (CFTC)
A federal regulatory agency authorized under the
Commodity Futures Trading Commission Act of 1974 to
regulate futures trading in all commodities. The commission
has five commissioners, one of whom is designated
as chairman, all appointed by the President, subject
to
Senate confirmation. The CFTC is independent of the
Cabinet departments.
COMMODITY POOL
A venture, usually a limited partnership, in which
funds contributed by a number of investors are combined
for the purpose of trading futures. Also called a commodity
fund or a futures fund.
11
COMMODITY POOL OPERATOR (CPO)
Acts as a general partner of commodity pools.
CPOs hire independent commodity trading
advisors to handle daily trading decisions. Responsible
for the pool’s administration, structure, and
selecting and
monitoring the traders who conduct transactions using
the fund’s money.
COMMODITY TRADING ADVISOR (CTA)
Directs trading in the managed accounts of a
commodity pool. Professional money managers who
manage client assets on a discretionary basis, using
global futures markets as an investment medium.
CONTANGO
A market situation in which prices are higher in
the succeeding delivery months than in the nearest delivery
month. Also known as a carry market, it is the opposite
of backwardation.
CONTINGENCY ORDER
An order which becomes effective only upon the
fulfillment of some condition in the marketplace.
CONTRACT
1) A term of reference describing a unit of trading
for a commodity future or option. 2) An agreement to
buy or sell a specified commodity, detailing the amount
and grade of the product and the date on which the contract
will mature and become deliverable.
CONTRACT GRADE
That grade of product established in the rules of a
commodity futures exchange as being suitable for delivery
against a futures contract.
CONTRACT MONTH
See delivery month.
CONTROL AREA
A large geographic area within which a utility (or
group of utilities) regulates electric power generation
in
order to maintain scheduled interchanges of power with
other control areas and to maintain the required
system frequency.
CONTROL AREA OPERATOR
An electric entity that operates generating capacity
to meet area demand, monitors actual interchange
(electric energy flowing between control areas), and
can
dispatch generating resources to ensure that actual
interchange
equals scheduled interchange.
CONVERSION
A delta-neutral arbitrage transaction involving a
long futures contract, a long put option, and a short
call
option. The put and call options have the same strike
price and same expiration date.
12
COOPERATIVE
A group organized under law into a utility company
that will generate, transmit, or distribute supplies
of
electric energy to a specified area not being serviced
by
another utility. Typically, a co-op is a not-for-profit
organization.
COORDINATION TRANSACTIONS
Short-term transactions undertaken primarily to
maintain the integrity of an electricity distribution
system.
COVER
To offset a short futures or options position.
COVERED WRITING
The sale of an option against an existing position
in the underlying futures contract. For example, a short
call and long futures position.
CRACKING
The process of breaking down the molecular
structure of a substance into smaller units. Petroleum
is
cracked as part of the refining process to extract products
such as heating oil and gasoline.
CRACK SPREADS
The simultaneous purchase or sale of crude oil
against the sale or purchase of refined petroleum products.
These spread differentials which represent refining
margins are normally quoted in dollars per barrel by
converting
the product prices into dollars per barrel (divide
the cents-per-gallon price by 42) and subtracting the
crude oil price.
CROSS TRADE
Offsetting match by a broker of the buy order of
one customer against the sell order of another, or a
match of a trade made by a broker with his customer,
a
practice that is permissible only when executed in accordance
with the Commodity Exchange Act, Commodity
Futures Trading Commission regulations, and rules of
the
contract market. Neither NYMEX Division nor COMEX
Division members are permitted to take the opposite
side
of a customer’s order, except, under certain circumstances,
for trades involving long-dated (nine months or
more forward) COMEX Division copper futures.
CRUDE OIL
A mixture of hydrocarbons that exists as a liquid
in natural underground reservoirs and remains liquid
at
atmospheric pressure after passing through surface separating
facilities. Crude is the raw material which is
refined into gasoline, heating oil, jet fuel, propane,
petrochemicals,
and other products.
13
CUBIC FOOT
The most common measure of gas volume, referring
to the amount of gas needed to fill a volume of one
cubic foot at 14.73 pounds per square inch absolute
pressure and 60o Fahrenheit. One cubic foot of natural
gas contains, on average, 1,027 Btus.
CURRENT DELIVERY MONTH
The futures contract which ceases trading and
becomes deliverable during the present month or the
month closest to delivery. Also called the spot month.
CUSHION GAS
The amount of gas required in a storage pool to
maintain sufficient pressure to keep the working gas
recoverable.
Back
to Top
D
Daily Price Limits: See
Limit (Up or Down).
Day Order: An order that
expires automatically at the end of each day's trading
session. There may be a day order with time contingency.
For example, an "off at a specific time" order
is an order that remains in force until the specified
time during the session is reached. At such time, the
order is automatically canceled.
Day Traders: Traders,
who take positions in the underlying and then offset
them prior to the close of trading on the same trading
day.
Day Trading: Establishing
and offsetting the same market position within one day.
Dealer Option: A put
or call on a physical commodity or security, not originating
on or subject to the rules of an exchange, in which
the obligation for performance rests with the writer
of the option. Dealer options are normally written by
firms handling the underlying commodity or security
and offered to public customers, although the reverse
may also be true.
Deck: The orders for
purchase or sale of futures and option contracts held
by a floor broker.
Declaration Date: See
Expiration Date.
Declaration (of Options):
See Exercise.
Default: Failure to perform
on a futures contract as required by exchange rules,
such as failure to meet a margin call, or to make or
take delivery.
Deferred Futures: The
futures contracts that expire during the most distant
months. Also called Back Months. See Forward Purchase
or Forward Sale.
Deliverable Grades: See
Contract Grades.
Deliverable Stocks: Stocks
of commodities located in exchange approved storage,
for which receipts may be used in making delivery on
futures contracts. In the cotton trade, the term refers
to cotton certified for delivery. Also see Certificated
Stocks.
Delivery: The tender
and receipt of the actual, security, or the cash value
of the underlying, or of a delivery instrument covering
the underlying (e.g., warehouse receipts or shipping
certificates), used to settle a futures contract. See
Notice of Delivery.
Delivery, Current: Deliveries
being made during a present month. Sometimes current
delivery is used as a synonym for nearby delivery.
Delivery Date: The date
on which the underlying or instrument of delivery must
be delivered to fulfill the terms of a contract.
Delivery Instrument:
A document used to effect delivery on a futures contract,
such as a warehouse receipt or shipping certificate.
Delivery Month: The specified
month within which a futures contract matures and can
be settled by delivery.
Delivery, Nearby: The
nearest traded month. In plural form, one of the nearer
trading months.
Delivery Notice: The
written notice given by the seller of his intention
to make delivery against an open short futures position
on a particular date. This notice, delivered through
the clearing house, is separate and distinct from the
warehouse receipt or other instrument that will be used
to transfer title.
Delivery Option: A provision
of a futures contract which provides the short with
flexibility in regard to timing, location, quantity,
or quality in the delivery process.
Delivery Points: Those
locations designated by commodity exchanges where stocks
of a commodity represented by a futures contract may
be delivered in fulfillment of the contract.
Delivery Price: The price
fixed by the clearing house at which deliveries on futures
are invoiced--generally the price at which the futures
contract is settled when deliveries are made.
Delta: The correlation
factor between the fluctuation of the price of the underlying
and the change in premium for the option on that underlying.
Delta changes from moment to moment as the option premium
changes. See Delta Value.
Delta Margining: An option
margining system used by some exchanges for exchange
members and/or floor traders which equates the changes
in option premiums with the changes in the price of
the underlying futures contract to determine risk factors
on which to base the margin requirements.
Delta Value: The expected
change in an option's price given a one-unit change
in the price of the underlying futures contract, physical
commodity, or equity shares.
Deposit: The initial
outlay required by a broker of a client to open a futures
position, returnable upon liquidation of that position.
Depository Receipt: See
Vault Receipt.
Derivative: A financial
instrument, traded on or off an exchange, the price
of which is directly dependent upon (i.e., "derived
from") the value of one or more underlying securities,
equity indices, debt instruments, commodities, other
derivative instruments, or any agreed upon pricing index
or arrangement (e.g., the movement over time of the
Consumer Price Index or freight rates). Derivatives
involve the trading of rights or obligations based on
the underlying product, but do not directly transfer
property. They are used to hedge risk or to exchange
a floating rate of return for fixed rate of return.
Designated Self Regulatory
Organization (DSRO): Self regulatory organizations (i.e.,
the commodity exchanges and the National Futures Association)
must enforce minimum financial and reporting requirements
for their members, among other responsibilities outlined
in the CFTC's regulations. When a futures commission
merchant (FCM) is a member of more than one SRO, the
SROs may decide among themselves which of them will
be responsible for assuming these regulatory duties
and, upon approval of the plan by the Commission, be
appointed the "designated self regulatory organization"
for that FCM.
Diagonal Spread: A spread
between two call options or two put options with different
strike prices and different expiration dates.
Differentials: The discount
(premium) allowed for grades or locations of a commodity
lower (higher) than the par of basis grade or location
specified in the futures contact. See Allowances.
Discount: (1) The amount
a price would be reduced to purchase a commodity of
lesser grade; (2) sometimes used to refer to the price
differences between futures of different delivery months,
as in the phrase "July at a discount to May,"
indicating that the price for the July futures is lower
than that of May.
Discount Basis: Method
of quoting securities where the price is expressed as
a annualized discount from maturity value.
Discount Bond: A bond
selling below par. See Par.
Discretionary Account:
An arrangement by which the holder of an account gives
written power of attorney to someone else, often a broker,
to buy and sell without prior approval of the holder;
often referred to as a "managed account" or
"controlled account." See Controlled Account.
Distant or Deferred Delivery:
Usually means one of the more distant months in which
futures trading is taking place.
Dominant Future: That
future having the largest number of open contracts.
Double Hedging: As used
by the CFTC, it implies a situation where a trader holds
a long position in the futures market in excess of the
speculative limit as an offset to a fixed price sale
even though the trader has an ample supply of the underlying
on hand to fill all sales commitments.
DSRO: See Designated
Self Regulatory Organization.
Dual Trading: Dual trading
occurs when: (1) a floor broker executes customer orders
and, on the same day, trades for his own account or
an account in which he has an interest; or (2) an FCM
carries customer accounts and also trades or permits
its employees to trade in accounts in which it has a
proprietary interest, also on the same trading day.
Duration: A measure of
a bond's price sensitivity to changes in interest rates.
DAILY LIMIT
The maximum futures contract price advance or
decline from the previous day’s settlement price
permitted
during one trading session, as fixed by the rules of
the Exchange.
DAY TRADE
The purchase and sale of a futures or an options
contract on the same day.
DEALER TANK WAGON PRICE (DTW)
The price, usually of branded gasoline, offered by
major refiners and delivered to service stations on
a cost,
insurance, and freight basis.
DEGREE DAY
A measure of the coldness of the weather (heating
degree day) or its heat (cooling degree day) based on
the
extent to which the daily mean temperature falls below
or
rises above 65o Fahrenheit.
DEKATHERM
Ten therms, 1 million British thermal units.
DELIVERED
Often regarded as synonymous with cost, insurance,
and freight in the international cargo trade, its
terms differ from the latter in a number of ways.
Generally, the seller’s risks are greater in a
delivered
transaction because the buyer pays on the basis of
landed quality/quantity. Risk and title are borne by
the
seller until such time as the commodity, such as oil,
passes from shipboard into the connecting flange of
the
buyer’s shore installation. The seller is responsible
for
clearance through customs and payment of all duties.
Any in-transit contamination or loss of cargo is the
seller’s liability. In delivered transactions,
the buyer pays
only for the quantity of oil actually received in storage.
14
DELIVERY
Delivery generally refers to the change of ownership
or control of a commodity under specific terms and
procedures established by the Exchange upon which the
contract is traded. Typically, except for energy, the
commodity
must be placed in an approved warehouse,
depository, or other storage facility, and be inspected
by
approved personnel, after which the facility issues
a
warehouse receipt, shipping certificate, demand certificate,
or due bill, which becomes a transferable delivery
instrument. Delivery of the instrument usually is preceded
by a notice of intention to deliver.
DELIVERY MONTH
The month specified in a given futures contract for
delivery of the actual physical spot or cash commodity.
DELIVERY NOTICE
A notice presented through an exchange’s clearinghouse
by a clearing member announcing the intention
to deliver the actual commodity in satisfaction of a
contract
obligation. See delivery.
DELIVERY POINT(S)
Location(s) designated by an exchange at which
delivery may be made in fulfillment of contract terms.
DELTA
The sensitivity of an option’s value to a change
in
the price of the underlying futures contract, also referred
to as an option’s futures-equivalent position.
Deltas are
positive for calls, and negative for puts. Deltas of
deep
in-the-money options are approximately equal to one;
deltas of at-the-money options are 0.5; and deltas of
deep out-of-the-money options approach zero.
DELTA NEUTRAL SPREAD
A spread where the total delta position on the
long side and the total delta on the short side add
up to
approximately zero.
DEPOSITORY OR WAREHOUSE RECEIPT
A document issued by a bank or warehouse indicating
ownership of a commodity stored in a bank
depository or warehouse. In the case of many commodities
deliverable against futures contracts, transfer of ownership
of an appropriate depository receipt may affect
contract delivery.
DERIVATIVE
Financial instrument derived from a cash market
commodity, futures contract, or other financial instrument.
Derivatives can be traded on regulated exchange
markets or over-the-counter. For example, futures contracts
are derivatives of physical commodities, options
on futures are derivatives of futures contracts.
15
DIESEL FUEL
Distillate fuel oil used in compression-ignition
engines. It is similar to home heating oil, but must
meet a
cetane number specification of 40 or more.
DIFFERENTIALS
Price differences between classes, grades, and
locations of different stocks of the same commodity.
DIRTY CARGO
Those petroleum products which leave significant
amounts of residue in tanks. Generally applies to crude
oil and residual fuel oil.
DISCOUNT
1) A downward adjustment in price allowed for
delivery of stocks of a commodity of lesser than contract
grade against a futures contract. 2) Sometimes used
to
refer to the price differences between futures of different
delivery months.
DISCRETIONARY ACCOUNT
An arrangement by which the holder of an
account gives written power of attorney to someone else,
often a broker, to buy and sell without prior approval
of
the account holder. Often referred to as a “managed
account.”
DISTILLATE FUEL OIL
Products of refinery distillation sometimes referred
to as middle distillates; kerosene, diesel fuel, and
home
heating oil.
DISTRIBUTION LINES
Low voltage (2,300 to 69,000 volts) electric power
lines that service homes and business. (See Transmission
Lines for comparison.)
DOCTOR TEST
A qualitative method of detecting undesirable sulfur
compounds in petroleum distillates; that is, determining
whether an oil is sour or sweet.
DOUBLE BOTTOMS
A chart pattern of the price movement of a commodity
that shows resistance to a falling market; the
inverse of double tops. The price patterns are used
by
technical analysts to recognize a reversal of a price
trend.
DOUBLE TOPS
A chart pattern of commodity price movements
that depict a rising market which hits resistance at
a certain
level, retreats, rises again, but still cannot breach
the
previous resistance point, and falls back again. The
price
patterns are used by technical analysts to recognize
a
reversal of a price trend.
16
DOWNSTREAM
An industry term referring to commercial oil and
gas operations beyond the production phase; oil refining
and marketing, and natural gas transmission and distribution.
DRY GAS
Gas that does not contain liquid hydrocarbons.
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E
Ease Off: A minor and/or
slow decline in the price of a market.
ECU: See European Currency
Unit.
Efficient Market: A market
in which new information is immediately available to
all investors and potential investors. A market in which
all information is instantaneously assimilated and therefore
has no distortions.
EFP: Exchange for Physical.
See Exchange of Futures for Cash.
Electronic Exchange (Electronic
Trading Exchange): A trading exchange that exists entirely
in cyberspace. There is no exchange trading floor and
no open outcry. Trading is done via computer matching
of orders, and the physical location of the exchange
administration need not be in the same physical location
as the computer that houses the exchange. An example
would be the Hang-Seng Index, an index comprised of
stocks on the Hong-Kong stock exchange. The exchange
administration is located in Hong-Kong, but trading
takes place on a computer located at the Matif Exchange
in the nation of France.
Electronic Order Entry:
Orders issued via an electronic device directly to a
receiving device in an open outcry trading pit. Orders
issued via an electronic device and received on an all
electronic trading platform where the orders are matched
for execution.
Electronic Order Routing:
Orders issued via an electronic device directly to a
receiving device in an open outcry trading pit, or to
a receiving device on a trading floor, and then carried
into the trading pit by a runner, or arbed into the
trading pit via hand signal.
Electronic Trading: Trading
done on a fully electronic trading exchange.
Elliot Wave: (1) A theory
named after Ralph Elliot, who contended that the stock
market tends to move in discernible and predictable
patterns reflecting the basic harmony of nature; (2)
in technical analysis, a charting method based on the
belief that ll prices act as wavers, rising and falling
rhythmically.
Equity: The residual
dollar value of a futures, option, or leverage trading
account, assuming it was liquidated at current prices.
Euro: The official currency
of the European Economic Community. It’s symbol
is €.
Eurocurrency: Certificates
of Deposit (CDS), bonds, deposits, or any capital market
instrument issued outside of the national boundaries
of the currency in which the instrument is denominated
(for example, Euro-Swiss francs, Euro-Deutsche marks,
eurodollars, eurodollar bonds, or eurodollar CDS).
Eurodollar or Eurodollar
Time Deposits: U.S. dollar deposits placed with banks
outside the U.S., either a foreign bank or the subsidiary
of a U.S. bank. Holders may include ndividuals, companies,
banks and central banks. The interest paid for these
dollar deposits generally is higher than that for funds
deposited in U.S. banks situated in the U.S. because
foreign banks are considered to be more risky, i.e.
they will not be supported or nationalized by the U.S.
government upon default.
Eurodollar Bonds: Bonds
issued in Europe by corporate or government interests
outside the boundary of the national capital market,
denominated in dollars.
Eurodollar CDS: Dollar-denominated
certificates of deposit issued by a bank outside of
the United States, either a foreign bank or U.S. bank
subsidiary.
European Currency Unit:
The official unit of account of the European Monetary
System. It is a combination or basket of the currencies
from the twelve European Community ountries: the Deutsche
mark, French franc, British pound sterling, Irish pound,
Italian lira, Belgian franc, Dutch guilder, Luxembourg
franc, Greek drachma, Spanish peseta, Portuguese escudo,
and the Danish krona.
Even Lot: A unit of trading
in a futures established by an exchange to which official
price quotations apply. See Round Lot.
Even Up: To close out,
liquidate, or cover an open position. Also to check
a position with the broker for agreement as to its current
standing.
Exchange of Futures for
Cash: A transaction in which the buyer of a cash commodity
transfers to the seller a corresponding amount of long
futures contracts, or receives from the seller a corresponding
amount of short futures, at a price difference mutually
agreed pon. In this way the opposite hedges in futures
of both parties are closed out simultaneously. Also
called EFP (Exchange for Physical), AA (Against Actuals)
or Ex-Pit transactions.
Exchange Rate: The price
of one currency stated in terms of another currency.
Exchange Risk Factor:
The delta value of an option as computed daily by the
exchange on which it is traded.
Exercise: To elect to
buy or sell, taking advantage of the right (but not
the obligation) conferred by an option contract.
Exercise (or Strike)
Price: The price specified in the option contract at
which the buyer of a call can purchase the underlying
during the life of the option, and the price specifiedin
the option contract at which the buyer of a put can
sell the underlying during the life of the option.
Exotic Options: Any of
a wide variety of options with non-standard payout structures,
including Asian options and Lookback options. Exotic
options are mostly traded in the over-the-counter market.
Expiration Date: The
date on which an option contract automatically expires;
the last day an option can be exercised.
Extrinsic Value: See
Time Value.
Ex-Pit: See Transfer
Trades and Exchange of Futures for Cash.
EFP
See Exchange of Futures for Physicals.
ELECTRIC UTILITY
An enterprise that is engaged in the generation,
transmission, and/or distribution of electric energy
primarily
for use by the public and is the major power supplier
within a designated service area. Electric utilities
include: investor-owned, publicly owned, cooperatively
owned, and government-owned entities.
ELECTRONIC TRADER
A person who is authorized to enter orders for his
own account and/or for customers’ accounts on
the
NYMEX ACCESS® electronic trading system.
END-USER
The ultimate consumer of petroleum products or
natural gas; most commonly refers to large commercial,
industrial, or utility consumers.
enymexSM
An internet-based electronic trading system offering
trading and clearing in products that are tied to traditional
New York Mercantile Exchange, Inc., futures
contracts.
EUROPEAN OPTION
An option that may be exercised only on its expiration
date.
EXCHANGE-CERTIFIED STOCKS
Stocks of commodities held in depositories or
warehouses certified by an Exchange-approved inspection
authority as constituting good delivery against a
futures contract position. Current total certified stocks
are reported in the press for many important commodities
such as gold, silver, copper, platinum, and palladium.
EXCHANGE OF FUTURES FOR PHYSICALS
A futures contract provision involving an agreement
for delivery of physical product that does not necessarily
conform to contract specifications in all terms
from one market participant to another and a concomitant
assumption of equal and opposite futures positions
by the same participants at the time of the agreement.
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EXERCISE
The process of converting an options contract
into a futures position.
EXERCISE PRICE
The price at which the underlying futures contract
will be bought or sold in the event an options contract
is
exercised. Also called the strike price.
EXPIRATION DATE
The date and time after which trading in an
options contract terminates, and after which all contract
rights or obligations become null and void.
EXTRINSIC VALUE
The amount by which the premium exceeds its
intrinsic value. Also known as time value.
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F
FAB Spread: Five Against
Bond. A futures spread trade involving the buying (selling)
of a five-year Treasury bond futures contract and the
selling (buying) of a long-term (15-30 year) Treasury
bond futures contract.
Fannie Mae: See Federal
National Mortgage Association.
FAN Spread: Five Against
Note. A futures spread trade involving the buying (selling)
of a five-year Treasury note futures contract and the
selling (buying) of a ten-year Treasury bond futures
contract.
Fast Market: An official
condition in a trading pit where transactions in the
pit or ring are taking place in such volume and with
such rapidity that the pit chairman calls an official
fast market condition. (See Fast Tape).
Fast Tape: Transactions
in the pit or ring take place in such volume and with
such rapidity that price reporters are behind with price
quotations, so insert "FAST" and show a range
of prices.
Federal National Mortgage
Association (FNMA): A corporation created by Congress
to support the secondary mortgage market; it purchases
and sells residential mortgages insured by the Federal
Home Administration (FHA) or guaranteed by the Veteran's
Administration (VA).
Federal Reserve Board:
A board of Directors comprised of seven members which
directs the federal banking system, is appointed by
the President of the United States, and confirmed by
the Senate. The functions of the board include formulating
and executing monetary policy, overseeing the Federal
Reserve Bank, and regulating and supervising member
banks. Monetary policy is implemented through the purchase
or sale of securities, and by raising or lowering the
discount rate — the interest rate at which banks
borrow from the Federal Reserve.
Feed Ratio: The relationship
of the cost of feed, expressed as a ratio to the sale
price of animals, such as the corn-hog ratio. These
serve as indicators of the profit margin or ack of profit
in feeding animals to market weight.
FIA: See Futures Industry
Association.
Fictitious Trading: Wash
trading, bucketing, cross trading, or other schemes
which give the appearance of trading. Actually, no bona
fide, competitive trade has occurred.
Fill or Kill Order: An
order which demands immediate execution or cancellation.
Financial Instruments:
As used by the CFTC, this term generally refers to any
futures or option contract that is not based on an agricultural
commodity or a natural resource. It includes currencies,
securities, mortgages, commercial paper, and indices
of various kinds.
Financial Futures: Include
interest rate futures, currency futures, and index futures.First
Notice Day: The first day on which notices of intent
to deliver actuals against futures market positions
can be received. First notice day may vary with each
futures and exchange.
Fix, Fixing: See Gold
Fixing.
Fixed Income Security:
A security whose nominal (or current dollar) yield is
fixed or determined with certainty at the time of purchase.
Floor Broker: Any person
who, in any pit, ring, post or other place provided
by a contract market for the meeting of persons similarly
engaged, executes for another person any orders for
the purchase or sale of any commodity or financial instrument
for future delivery.Floor Trader: An exchange member
who executes his own trades by being personally present
in the pit for futures trading. See Local.
F.O.B. (Free On Board):
Indicates that all delivery, inspection and elevation
or loading costs involved in putting commodities on
board a carrier have been paid.
Forced Liquidation: The
situation in which a customer's account is liquidated
(open positions are offset) by the brokerage firm holding
the account, usually after notification that the account
is undercapitalized (margin calls).
Force Majeure: A clause
in a supply contract which permits either party not
to fulfill the contractual commitments due to events
beyond their control. These events may range from strikes
to export delays in producing countries.Foreign Exchange:
Foreign Currency. On the foreign exchange market, foreign
currency is bought and sold for immediate or future
delivery.
FOREX: An acronym for
the Foreign Exchange Market. FOREX is a cash market
where the currencies for many nations are traded via
brokers located in various parts of the world. FOREX
transactions are not traded in futures markets.
Forward: In the future.
Forwardation: See Contango.
Forward Contracting or
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 ate. 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 contract differ from
futures contracts in that with futures contracts, quality,
quantity, price, and place of delivery are all established
by the Exchange as opposed to establishment of these
factors by the individual parties to the agreement.
Forward Market: Refers
to informal (non-exchange) trading of commodities to
be delivered at a future date. Contracts for forward
delivery are "personalized" (i.e., delivery
time and amount are as determined between seller and
customer).
Forward Months: Futures
contracts, currently trading, calling for later or distant
delivery. See Deferred Futures.Forward Purchase or Sale:
A purchase or sale between commercial parties of an
actual commodity for deferred delivery.
Free Crowd System: A
system of trading, common to most U.S. non-electronic
futures exchanges, where all floor members may bid and
offer simultaneously either for their own accounts or
for the accounts of customers, and transactions may
take place simultaneously at different places in the
trading ring. Also see Board Broker System and Specialist
System.
Frontrunning: With respect
to futures and options, taking a futures or option position
based upon non-public information regarding an impending
transaction by another person in the same or related
future or option.Full Carrying Charge, Full Carry: See
Carrying Charges.
Fundamental Analysis:
Study of basic, underlying factors such as weather,
wars, discoveries, and changes is government policy,
which will affect the supply and demand of the underlying
being traded in futures contracts. See Technical Analysis.
Fungibility: The characteristic
of interchangeability. Futures contracts for the same
commodity or financial instrument and delivery month
are fungible due to their standardized specifications
for quality, quantity, delivery date and delivery locations.
Futures: See Futures
Contract.
Futures Commission Merchant
(FCM): Individuals, associations, partnerships, corporations
and trusts that solicit or accept orders for the purchase
or sale of any ommodity or financial instrument for
future delivery on or subject to the rules of any contract
market and that accept payment from or extend credit
to those whose orders are accepted.
Futures Contract: An
agreement to purchase or sell a commodity, currency,
Index, or financial instrument for delivery in the future:
(1) at a price that is determined at initiation of the
contract; (2) which obligates each party to the contract
to fulfill the contract at the specified price; (3)
which is used to assume or shift price risk; and (4)
which may be satisfied by delivery or offset. The terms
of the agreement are set by exchanges. In the case of
a currency, index, financial instrument, or certain
commodities (e.g., lean hogs), the purchase or sale
is completed by delivery and acceptance of cash.Futures-equivalent:
A term frequently used with reference to speculative
position limits for options on futures contracts. The
futures-equivalent of an option position is the number
of options multiplied by the previous day's risk factor
or delta for the option series. For example, 10 deep
out-of-money options with a risk factor of 0.20 would
be considered 2 futures-equivalent contracts. The delta
or risk factor used for this purpose is the same as
that used in delta-based margining and risk analysis
systems.
Futures Industry Association
(FIA): A membership organization for futures commission
merchants (FCMs) which, among other activities, offers
education courses on the futures markets, disburses
information and lobbies on behalf of its members.
Futures Price: (1) Commonly
held to mean the price of a commodity for future delivery
hat is traded on a futures exchange. (2) The price of
any futures contract.
FAIR VALUE
Theoretical value.
FAST MARKET
Transactions in the ring that take place in such
volume and with such rapidity that price reporters may
fall behind with price quotations, so they insert “Fast”
and show a range of prices.
FEEDSTOCK
The supply of crude oil, natural gas liquids, or natural
gas to a refinery or petrochemical plant or the supply
of some refined fraction of intermediate product to
some
other manufacturing process.
FENCE
A long (short) underlying position together with a
long (short) out-of-the-money put and a short (long)
outof-
the-money call. All options must expire at the same
time.
FILL
The price at which an order is executed.
FILL-OR-KILL
An order which must be filled immediately, and in
its entirety. Failing this, the order will be canceled.
FINENESS
The purity of precious metal measured in parts
per thousand.
FINE WEIGHT
The weight of precious metal contained in a coin
or bullion as determined by multiplying the gross weight
by the fineness.
FIRM ENERGY
The highest quality sales of electric transmission
service offered to customers under a filed rate schedule
that anticipates no planned interruption.
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FIRM SERVICE
Utility service which assumes no interruption
except if residential customers’ supply is threatened.
Opposite of interruptible service.
FIRST NOTICE DAY
For Exchange metals contracts, the first day on
which the clearinghouse notifies clearing members of
delivery allocations. Energy contracts have only one
notice day.
FLOOR
1) The main trading area of an exchange.
2) A supply contract between a buyer and seller
of a commodity, whereby the seller is assured that he
will
receive at least some minimum price. This type of contract
is analogous to a put option.
FLOOR BROKER
An exchange member who executes orders to
buy or sell futures and options on behalf of customers
in
the trading ring on the floor of a commodities exchange.
FLOOR TRADER
An exchange member who buys or sells futures
and/or options on the floor of the Exchange.
FORCE MAJEURE
A standard clause which indemnifies either or
both parties to a transaction whenever events which
the
Exchange declares to be reasonably beyond the control
of either party occur to prevent fulfillment of the
terms of
the contract.
FORWARD CONTRACT
A supply contract between a buyer and seller,
whereby the buyer is obligated to take delivery and
the
seller is obligated to provide delivery of a fixed amount
of
a commodity at a predetermined price on a specified
future date. Payment in full is due at the time of,
or following,
delivery. This differs from a futures contract
where settlement is made daily, resulting in partial
payment
over the life of the contract.
FRACTIONATION
The process whereby saturated hydrocarbons
from natural gas are separated into distinct parts or
“fractions”
such as propane, butane, ethane, etc.
FREE ON BOARD (FOB)
A transaction in which the seller provides a commodity
at an agreed unit price, at a specified loading
point within a specified period; it is the responsibility
of
the buyer to arrange for transportation and insurance.
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FRONT MONTHS
Depending on the commodity, each of which
tends to have its own level of trading activity, front
months may refer to any of the first few contract months.
FUEL OIL
Refined petroleum products used as a fuel for
home heating and industrial and utility boilers. Fuel
oil is
divided into two broad categories, distillate fuel oil,
also
known as No. 2 fuel, gasoil, or diesel fuel; and residual
fuel oil, also known as No. 6 fuel, or, outside the
United
States, just as fuel oil. No. 2 fuel is a light oil
used for
home heating, in compression ignition engines, and in
light industrial applications. No. 6 oil is a heavy
fuel used
in large commercial, industrial, and electric utility
boilers.
FUNDAMENTAL ANALYSIS
The study of pertinent supply and demand factors
which influence the specific price behavior of commodities.
Also see Technical Analysis.
FUNGIBLE
Interchangeable. Products which can be substituted
for purposes of shipment or storage.
FUTURES CONTRACT
A contract between a buyer and seller, whereby
the buyer is obligated to take delivery and the seller
is
obligated to provide future delivery of a fixed amount
of a
commodity at a predetermined price at a specified location.
Futures contracts are most often liquidated prior to
the delivery date and are generally used as a financial
risk
management and investment tool rather than for supply
purposes. These contracts are traded exclusively on
regulated
exchanges and are settled daily based on their
current value in the marketplace.
FUTURES COMMISSION MERCHANT (FCM)
An FCM is the only industry participant who
receives, handles, and manages customer funds, margin
payments, and commission charges. He is also responsible
for confirmation of trade slips, customer statements,
and guarantees.
FUTURES-EQUIVALENT
A term frequently used with reference to speculative
position limits for options on futures contracts. The
futures-equivalent of an options position is the number
of
options multiplied by the previous day’s risk
factor or
delta for the options series. For example, 10 deep out-ofthe
money options with a risk factor of 0.20 would be
considered two futures-equivalent contracts. The delta
or
risk factors used for this purpose is the same as that
used in delta-based margining and risk analysis systems.
20
FUTURES INDUSTRY ASSOCIATION (FIA)
A national not-for-profit futures industry trade
association that represents the brokerage community
on
industry, regulatory, political, and educational issues.
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G
Ginnie Mae: Pass-through
mortgage-backed certificates guaranteed by the Government
National Mortgage Association (GNMA or Ginnie Mae).
The certificates are backed by pools of FHA insured
and/or VA guaranteed residential mortgages, with the
mortgage and not held in safekeeping by a custodial
financial institution. Also called G.N.M.A.s or G.N.M.A.
certificates.
Ginzy Trading: A trade
practice in which a floor broker, in executing an order
-- particularly a large order -- will fill a portion
of the order at one price and the remainder of the order
at another price to avoid an exchange's rule against
trading at fractional increments or "split ticks."
In In re Murphy, [1984-86 Transfer Binder] Comm. Fut
L. Rep. (CCH) at pp. 31,353-4 (Sept. 25, 1985), the
Commission found that ginzy trading was a noncompetitive
trading practice in violation of section 4c(a)(B) of
the Commodity Exchange Act and CFTC regulation 1.38(a).
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 orderfrom the customer collects
a wire toll from the carrying broker for the use of
the facilities. Often used to consolidate many small
orders or to disperse large ones.
Globex: An international
electronic trading system for futures and options that
allows participating exchanges to list their products
for trading after the close of the exchanges' open outcry
trading hours. Developed by Reuters Limited for use
by the Chicago Mercantile Exchange (CME), Globex was
launched on June 25, 1992, for certain CME contracts.
Various MATIF (Marche a Terme International de France)
contracts began trading on the system on March 15, 1993.
G.N.M.A.: The Government
National Mortgage Association; a government agency within
the Department of Housing and Urban Development that,
among other things,guarantees payment on mortgage-backed
certificates. (See Ginnie Mae).
Gold Certificate: A certificate
attesting to a person's ownership of a specific amount
of gold bullion.
Gold Fixing (Gold Fix):
The setting of the gold price at 10:30 AM (first fixing)
and 3:00 PM (second fixing) in London by five representatives
of the London Gold Market. See London Gold Market.
Gold/Silver Ratio: The
number of ounces of silver required to buy one ounce
of gold at current spot prices.
Good This Week Order
(GTW): Order which is valid only for the week in which
it is placed.Good 'Til Canceled Order (GTC): Order which
is valid at any time during market hours until executed
or canceled. See Open Order.
GPM: See Gross Processing
Margin.
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.
Grain Futures Act: Federal
statute which regulated trading in grain futures, effective
June 22, 1923; administered by the U.S. Department of
Agriculture; amended in 1936 by the Commodity Exchange
Act.
Grantor: The maker, writer,
or issuer of an option contract who, in return for the
remium paid for the option, stands ready to purchase
the underlying commodity (or futures contract) in the
case of a put option or to sell the underlying commodity
(or futures contract) in the case of a call option.
Gross Processing Margin
(GPM): Refers to the difference between the cost of
a commodity and the combined sales income of the finished
products which result from processing the commodity.
Various industries have formulas to express the relationship
of raw material costs to sales income from finished
products. See Crack and Crush.
GTC: See Good 'Til Canceled
order.
GTW: See Good This Week
order.
GAMMA
The sensitivity of an option’s delta to changes
in
the price of the underlying futures contract.
GASOIL
European designation for No. 2 heating oil and
diesel fuel.
GASOLINE, STRAIGHT-RUN
Also known as raw gasoline. Gasoline which is
obtained directly from crude oil by fractional distillation.
Straight-run gasoline generally must be upgraded to
meet current motor fuel specifications.
GATHERING
The collection of hydrocarbons, such as natural
gas or crude oil, from wellheads via pipeline or truck.
GENERATION
The process of producing electric energy by
transforming other forms of energy. The amount of
energy produced is expressed in watthours.
GIGAJOULE (GJ)
One billion joules, approximately equal to 948,211
British thermal units. One million Btus equals 1.0546175
GJ.
GIGAWATT (GW)
One billion watts.
GOLD/SILVER RATIO
The number of ounces of silver required to buy
one ounce of gold at current spot prices.
GOOD DELIVERY
Approved metals brands acceptable for delivery
against the metals contracts.
GOOD ‘TIL CANCELED
An order to be held by a broker until it can be
filled or until canceled.
GRADE 1 COPPER
Copper which is good for delivery against the
COMEX Division high grade copper futures contract and
meets the ASTM specification B115-91.
GREENHOUSE EFFECT
The sequence of atmospheric effects wherein the
earth’s absorption of solar radiation is greater
than its reemission
of radiation into space, facilitating global warming.
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H
Haircut: (1) In determining
whether assets meet capital requirements, a percentage
reduction in the stated value of assets. (2) In computing
the worth of assets deposited as collateral or margin,
a reduction from market value.
Hardening: (1) Describes
a price which is gradually stabilizing; (2) a term indicating
a slowly advancing market.
Heavy: A market in which
prices are demonstrating either an inability to advance
or a slight tendency to decline.
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; a purchase or sale of futures
as a temporary substitute for a cash transaction that
will occur later. Hedging is done to transfer the risk
of loss. The position in the futures market is opposite
to the position held in the cash market; i.e., a long
cash position is hedged with a short futures position
(short hedge), and vice-versa (long hedge).
Hog-Corn Ratio: See Feed
Ratio.
Hybrid-Instruments: Financial
instruments that possess, in varying combinations, characteristics
of forward contracts, futures contracts, option contracts,
debt instruments, bank depository interests, and other
interests. Certain hybrid instruments are exempt from
CFTC regulation.
HALLMARK
A stamped impression on the surface of a precious
metals bar that indicates the producer, serial number,
weight, and purity of metal content.
HARDNESS/GRINDABILITY
Hardness measures based on the Hardgrove
Index, how difficult it is to pulverize coal for injection
into
the boiler flame.
HARDGROVE INDEX
An index, with a scale of 1 to 100, for measuring
the hardness of a mineral. Diamond is a 1 on the
Hardgrove Index, while talc is 100.
HEATING OIL
No. 2 fuel oil, a distillate fuel oil used either for
domestic heating or in moderate capacity commercialindustrial
burners.
HEAVY CRUDE
Crude oil with a high specific gravity and a low
API gravity due to the presence of a high proportion
of
heavy hydrocarbon fractions.
HEDGE
The initiation of a position in a futures or options
market that is intended as a temporary substitute for
the
sale or purchase of the actual commodity. For example:
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.
HEDGER
A trader who enters the market with the
specific intent of protecting an existing or anticipated
physical market exposure from unexpected or adverse
price fluctuations.
HEDGE RATIO
1) 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.
2) The ratio, determined by an option’s delta,
of futures to
options required to establish a risk-free position.
For
example, if a $1/barrel change in the underlying futures
price leads to a $0.25/barrel change in the options
premium,
the hedge ratio is four (four options for each
futures contract).
HISTORICAL VOLATILITY
The annualized standard deviation of percent
changes in futures prices over a specific period. It
is an
indication of past volatility in the marketplace.
22
HORIZONTAL SPREAD
Calendar or time spread.
HYDROCARBONS
Organic chemical compounds containing hydrogen
and carbon atoms. They form the basis of all petroleum
products.
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I
IB: See Introducing Broker.
Index Arbitrage: The
simultaneous purchase (sale) of stock index futures
and the sale (purchase) of some or all of the component
stocks which make up the particular stock index to profit
from sufficiently large intermarket spreads between
the futures contract and the index itself.
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. See Original Margin.
In Sight: The amount
of a particular commodity that arrives at terminal or
central locations is 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(s): See Financial
Instruments.
Intercommodity Spread:
A spread in which the long and short legs are in two
different but generally related commodity or futures
markets. Also called an intermarket spread. See Spread.
Interdelivery Spread:
A spread involving two different months of the same
commodity or futures contract. Also called an intracommodity
spread. See Spread.
Interest Rate Futures:
Futures contracts traded on fixed income securities
such as G.N.M.A.s, U.S. Treasury issues, Eurodollars,
30-day Fed Funds, LIBOR, PIBOR, FIBOR, or CDS. Currency
is excluded from this category, even though interest
rates are a factor in currency values.
Intermarket Spread: See
Spread and Intercommodity Spread.
International Commodities
Clearinghouse (ICCH): An independent organization that
serves as a clearinghouse for most futures markets in
London, Bermuda, Singapore, Australia, and New Zealand.
In-The-Money: A term
used to describe an option contract that has a positive
value if exercised. A call at $400 on gold trading at
$10 is in-the-money 10 dollars.
Intracommodity Spread:
See Spread and Interdelivery Spread.
Intrinsic Value: A measure
of the value of an option or a warrant if immediately
exercised. The amount by which the current price for
the underlying commodity or futures contract is above
the strike price of a call option or below the strike
price of a put option for the commodity or futures contract.
Introducing Broker (or
IB): Any person (other than a person registered as an
"associated person" of a futures commission
merchant) who is engaged in soliciting or in accepting
orders for the purchase or sale of any commodity or
futures contract for future delivery on an exchange
who does not accept any money, securities, or property
to margin, guarantee, or secure any trades or contracts
that result therefrom.
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. The notable exceptions
are interest rate futures, which are inverted when the
distant contracts are at a premium to near-month contracts.
See Backwardation.
Invisible Supply: Uncounted
stocks of a commodity in the hands of wholesalers, manufacturers
and producers which cannot be identified accurately;
stocks outside commercial channels but theoretically
available to the market.
ISDA: The International
Swap Dealers Association, Inc., a New York-based group
of major international swap dealers, which has published
the Code of Standard Wording, Assumptions and Provisions
for Swaps, or Swaps Code, for U.S. dollar interest rate
swaps as well as standard master interest rate and currency
swap agreements and definitions for use in connection
with the creation and trading of swaps.
IMBALANCE ENERGY
Discrepancy between the amount that a seller
contracted to deliver and the actual volume of power
delivered. Imbalances are resolved through monetary
payment.
IMMEDIATE-OR-CANCEL
An order which must be filled immediately or be
canceled. IOC orders need not be filled in their entirety.
IMPLIED VOLATILITY
A measurement of the market’s expected price
range of the underlying commodity futures based on
market-traded options premiums.
INTERCONNECTION
1. Any of the five subdivisions of the North
American electric power system: Eastern, Western;
ERCOT (the state of Texas), Quebec, and Alaska. 2. The
facilities that connect two systems or control areas,
or
nonutility generators to a control area or system.
IN-THE-MONEY
An options contract that can be exercised and
immediately closed out against the underlying market
for
a cash credit. The option is in-the-money if the underlying
futures price is above a call option’s strike
price, or
below a put option’s strike price.
INADVERTENT ENERGY
The imbalance of energy flows back and forth that
are on-going and routine between a generator of power
and the centers of demand. These imbalances are typically
settled through exchanges of physical product.
INDEPENDENT
Term generally applies to a non-integrated oil or
natural gas company, usually active in only one or two
sectors of the industry. An independent marketer buys
petroleum products from major or independent refiners
and resells them under his own brand name or buys natural
gas from producers and resells it. There are also
independents which are active exclusively either in
oil or
gas production or refining.
INDEPENDENT POWER PRODUCER (IPP)
A non-utility power generating company that is
not a qualifying facility (See Qualifying Facility).
23
INDEPENDENT SYSTEM OPERATOR (ISO)
ISOs are responsible for overseeing the operation
and scheduling of power through regional power grids.
Tasks may include scheduling, managing emergency
demands, and balancing generation and dissemination
of
power.
INTEGRATION
A term that describes the degree in, and to, which
one given company participates in all phases of the
petroleum industry.
INTERRUPTIBLE SERVICE
Utility service which expects and permits interruption
on short notice, generally in peak-load periods, in
order to meet the demand by firm service customers.
Interruptible service customers usually pay a lower
rate
than firm service customers. Opposite of Firm Service.
INTRINSIC VALUE
The amount by which an option is in-the-money.
An option which is not in-the-money has no intrinsic
value. For calls, intrinsic value equals the difference
between the underlying futures price and the option’s
strike price. For puts, intrinsic value equals the option’s
strike price minus the underlying futures price. Intrinsic
value is never less than zero.
INTRODUCING BROKER
A firm engaged in soliciting or in accepting orders
for the purchase or sale of any commodity for future
delivery, but does not accept money, securities or property
to margin, guarantee, or secure trades or contracts.
INVERTED MARKET
A futures market is said to be inverted when distant
contract months are selling at a discount to nearby
contract months; also known as backwardation.
INVISIBLE SUPPLY
Uncounted stocks of a commodity in the hands of
wholesalers, manufacturers, and producers which cannot
be identified accurately; stocks outside commercial
channels but theoretically available to the market.
IN-WELL TRANSFER
An inventory transfer of propane held in underground
caverns or storage.
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J
Job Lot: A form of contract
having a smaller unit of trading than is featured in
a regular contract.
JET FUEL
Kerosene-type; high-quality kerosene product
used primarily as fuel for commercial turbojet and turboprop
aircraft engines.
JOBBER
A middleman. A gasoline jobber, for example,
might buy from refiners and would resell to small distributors
or consumers.
24
JOULE
A metric unit of energy.
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K
Kerb Trading or Dealing:
See Curb Trading.
KARAT
A measure of the purity of gold. Pure gold is 24-
karat.
KILOWATT (KW)
One thousand watts.
KILOWATT HOUR (KWH)
Amount of electricity needed to light 10, 100-watt
light bulbs for a one-hour period. One thousand watts
used for one hour.
KYOTO PROTOCOL
The international agreement signed in 1997 to
limit the level of greenhouse gas emissions in an effort
to
inhibit damage to the earth’s ozone layer and
thereby
reduce the rate of global warming.
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L
Large Order Execution
(LOX) Procedures: Rules in place at the Chicago Mercantile
Exchange that authorize a member firm which receives
a large order from an initiating party to solicit counterparty
interest off the exchange floor prior to open execution
of the order in the pit and that provide for special
surveillance procedures. The parties determine a maximum
quantity and an "intended execution price."
Subsequently, the initiating party's order quantity
is exposed to the pit; any bids (or offers) up to and
including those at the intended execution price are
hit (acceptable). The unexecuted balance is then crossed
with the contraside trader found using the LOX procedures.
Large Traders: A large
trader is one who holds or controls a position in any
one futures or in any one option expiration series of
a commodity or financial instrument on any one contract
market equaling or exceeding the exchange or CFTC-specified
reporting level.
Last Notice Day: The
final day on which notices of intent to deliver on futures
contractsmay be issued.
Last Trading Day: Day
on which trading ceases for the maturing (current) delivery
month.
Law of Demand: Demand
exhibits a direct relationship to price. If all other
factors remain constant, an increase in demand leads
to an increase in price, while a decrease in demand
leads to a decrease in price.
Law of Supply: Supply
exhibits an inverse relationship to price. If all other
factors remain constant, an increase in supply leads
to a decrease in price, while a decrease in supply leads
to an increase in price.
Leaps: Long-dated, exchange-traded
options.Leverage Contract: A contract, standardized
as to terms and conditions, for the long-term (ten years
or longer) purchase (long leverage contract) or sale
(short leverage contract) by a leverage customer of
leverage commodity which provides for: (1) participation
by the leverage transaction merchant as a principal
in each leverage transaction; (2) initial and maintenance
margin payments by the leverage customer; (3) periodic
payment by the leverage customer or accrual by the leverage
transaction merchant to the leverage customer of a variable
carrying charge or fee on the initial value of the contract
plus any margin deposits made by the leverage customer
in connection with a short leverage contract; (4) delivery
of a commodity in an amount and form which can be readily
purchased and sold in normal commercial or retail channels;(5)
delivery of the leverage commodity after satisfaction
of the balance due on the contract; and (6) determination
of the contract purchase and repurchase, or sale and
resale, prices by the leverage transaction merchant.
Leverage Dealer: See
Leverage Transaction Merchant.
Leverage Transaction
Merchant: Any individual, association, partnership,
corporation, or trust that is engaged in the business
of offering to enter into, entering into, or confirming
the execution of leverage contracts, or soliciting or
accepting orders for leverage contracts, and who accepts
leverage customer funds or extends credit in lieu of
those funds.
Licensed Warehouse: A
warehouse approved by exchange from which a commoditymay
be delivered on a futures contract. See Regular Warehouse.
Life of Contact: Period
between the beginning of trading in a particular futures
contract and the expiration of trading. In some cases
this phrase denotes the period already passed in which
trading has already occurred. For example, "The
life-of-contract high so far is $2.50." Same as
Life of Delivery or Life of the Future.
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. See Daily Price
Limits.
Limit Move: A price that
has advanced or declined the permissible limit during
one trading session, as fixed by the rules of a contract
market.
Limit Only: The definite
price stated by a customer to a broker restricting the
execution of an order to buy for not more than, or to
sell for not less than, the stated price.
Limit Order: An order
in which the customer specifies a price limit or other
condition, such as time of an order, as contrasted with
a market order which implies that the order should be
filled as soon as possible.
Limited Risk Spread:
A bull spread in a market where the priced difference
between the two contract months covers the full carrying
charges. The risk is limited because the probability
of the distant month price moving to a premium greater
than full carrying charges is minimal.
Liquidation: The closing
out of a long position. The term is sometimes used to
denote losing out a short position, but this is more
often referred to as covering. For an open long, this
would be selling the contract. For a short position,
it would be buying the contract back (short covering,
or covering his short). See Cover.
Liquid Market or Liquidity:
A market in which selling and buying can be accomplished
with minimal price change. Liquidity refers to a market
which allows quick and efficient entry or exit at a
price close to the last traded price. This ability to
liquidate or establish a position quickly is due to
a large number of traders willing to buy and sell. The
market is said to flow like liquid, or have liquidity.
Live Data: Data available
via the Internet, receiving dish, or computer connected
terminal. Some exchanges define live data as data able
to be received within five inutes of the time a trading
event has occurred on the trading floor. Live data on
an electronic exchange is within seconds of a trading
event taking place on the electronic exchange.
Local: A member of a
U.S. exchange who trades for his own account and/or
fills orders for customers and whose activities provide
market liquidity. See Floor Trader.
Locked-In: A hedged position
that cannot be lifted without offsetting both sides
of the hedge (spread). See Hedging. Also refers to being
caught in a limit price move.
London Gold Market: Refers
to the five dealers who set (fix) the gold price in
London: Mocatta & Goldsmid, N. Rothschild &
Sons, Johnson Matthey, Sharps Pixley, and Samuel Montagu
& Co.London Option: A generic term sometimes used
to describe options on physical commodities or on futures
contracts traded abroad (typified by options on London
commodity markets). These options, which often had nothing
whatsoever to do with legitimate foreign markets, gained
notoriety--prior to their ban in the United States in
1978--because of the sales practices and fraud allegations
associated with the American dealers who sold them.
Long: (1) One who has
bought a futures contract to establish a market position,
generally in anticipation of a price increase.; (2)
a market position which obligates the holder to take
delivery; (3) one who owns an inventory of commodities.
See Short.
Long Hedge: Purchase
of futures against the fixed price forward sale of a
cashcommodity.
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.
The trader who is long the basis profits from the basis
becoming more positive (stronger); for example, if a
farmer sold a January soybean futures contract at $6.00
with the cash market at $5.80, the basis is minus .20.
If he repurchased the January contract later at $5.50
when the cash price was $5.40, the basis would then
be minus .10. The trader would have profited from the
hedge by a 10 cent increase in basis.
Lookback Option: An option
whose payoff depends on the minimum or maximum price
of the underlying asset during some portion of the life
of the option.Lot: A unit of trading. See Even Lot,
Job Lot, and Round Lot.
LTM: Leverage Transaction
Merchant.
LANDED PRICE
The actual delivered cost of oil to a refiner, taking
into account all costs from production or purchase to
the
refinery.
LAST NOTICE DAY
For Exchange metals contracts, the final day on
which notices of intent to deliver on futures contracts
may be issued. There is only one notice day for
Exchange energy contracts.
LAST TRADING DAY
The final trading day for a particular delivery
month futures contract or options contract. Any futures
contracts left open following this session must be settled
by delivery.
LEASE
Financial instrument based upon the contango in
the gold or silver market to finance precious metals
inventory.
LEGAL TENDER
Coins that have been authorized by Congress.
This includes circulating coins and all commemorative
coins legislated by Congress.
LICENSED WAREHOUSES
Warehouses which have been approved for the
storage of copper or aluminum deliverable against the
COMEX Division copper and aluminum futures contracts.
LICENSED WEIGHMASTER
An organization approved by the Exchange to witness
and verify the weighing of copper or aluminum
delivered against the COMEX Division copper or aluminum
futures contract.
25
LIFTING
Refers to tankers and barges loading cargoes of
petroleum at a terminal or transshipment point.
LIGHT CRUDE
Crude oil with a low specific gravity and high API
gravity due to the presence of a high proportion of
light
hydrocarbon fractions.
LIGHT ENDS
The more volatile products of petroleum
refining, such as butane, propane, and ethane.
LIGNITE
An abundant, brownish-black coal with
generally high moisture and ash content and lower
heating value.
LIMIT
The maximum daily allowable amount a futures
price may advance or decline in any one day’s
trading
session. Limits are also placed on the number of positions
a participant may hold in the market.
LIMIT ORDER
A contingent order for an options or futures trade
specifying a certain maximum (or minimum) price,
beyond which the order (buy or sell) is not to be
executed.
LIQUEFIED NATURAL GAS (LNG)
Natural gas which has been made liquid by reducing
its temperature to minus 258o Fahrenheit at atmospheric
pressure. Its volume is 1/600 of gas in vapor form.
LIQUEFIED PETROLEUM GAS (LPG)
Propane, butane, or propane-butane mixtures
derived from crude oil refining or natural gas fractionation.
For convenience of transportation, these gases are
liquefied through pressurization.
LIQUIDATION
The closing out of futures and options
positions.
LIQUIDITY
A market is said to be “liquid” when it
has a high
level of trading activity and open interest.
LIQUID MARKET
A market characterized by the ability to buy and
sell with relative ease.
LOAD
The amount of power carried by a utility system or
subsystem, or the amount of power consumed by an
electric device, at a specified time. Load is also referred
to as demand.
26
LOAD FOLLOWING
The daily varying of power output by a
generator.
LOCAL
An Exchange member who buys or sells futures
and/or options for his own account.
LOCAL DISTRIBUTION COMPANY (LDC)
Company that distributes natural gas primarily to
end-users. A gas utility.
LOCKED MARKET
A market where prices have reached their daily
trading limit and trading can only be conducted at that
price or prices which are closer to the previous day’s
settlement
price.
LONG
1) The market position of a futures contract buyer
whose purchase obligates him to accept delivery unless
he liquidates his contract with an offsetting sale.
2) One
who has bought a futures contract to establish a market
position. 3) In the options market, position of the
buyer
of a call or put options contract. Opposite of
short.
LONG HEDGE
Purchase of futures against the future market
price purchase or fixed price forward sale of a cash
commodity
to protect against price increases.
LONG-THE-BASIS
A person or firm that owns the spot commodity
and hedges with a sale of futures is said to be long-thebasis.
LONG TON
A weight measurement equaling 2,240 pounds
versus the 2,000 pounds of a short ton.
LOT
A specific quantity of a futures commodity of uniform
grade; the standard contract unit of trading.
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M
Maintenance Margin: See
Margin.
Managed Account: See
Controlled Account and Discretionary Account.
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 the clearinghouse, for the purpose
of insuring the broker or clearinghouse against loss
on open futures contracts. The margin is not partial
payment on a purchase. (1) Initial margin is the total
amount of margin per contract required by the broker
when a futures position is opened; (2) Maintenance margin
is a sum which must be maintained on deposit at all
times. If the equity in a customer's account drops to,
or under, the level because of adverse price movement,
the broker must issue a margin call to restore the customer's
equity. See Variation Margin.
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
clearinghouse to a clearing member to ake a deposit
of original margin, or a daily or intra-day variation
payment, because of adverse price movement, based on
positions carried by the clearing member.
Market Correction: In
technical analysis, a small reversal in prices following
a significant trending period.
Marketer: See Distributor.
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.
Market Marker: A professional
securities dealer who has an obligation to buy when
there is an excess of sell orders and to sell when there
is an excess of buy orders. By aintaining an offering
price sufficiently higher than their buying price, these
firms are compensated for the risk involved in allowing
their inventory of securities to act as a buffer against
temporary order imbalances. In the commodities industry,
this term is sometimes loosely used to refer to a floor
trader or local who, in speculating for his own account,
provides a market for commercial users of the market.
See Specialist System.
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. See Stop-Close-Only
Order.
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 obtainableat the time it is entered in the ring or
pit. Time, not price is of primary importance. See At-The-Market.
Mark-to-Market: Daily
cash flow system used by U.S. futures exchanges to maintain
a minimum level of margin equity for a given futures
or option contract position by calculating the gain
or loss in each contract position resulting from changes
in the price of the futures or option contracts at the
end of each trading day.
Market Value Weighted
Index: A stock index in which each stock is weighted
by market value. A change in the price of any stock
will influence the index in proportion to the stock’s
respective market value. The value of each stock is
determined by multiplying the number of shares outstanding
by the stock’s market price per share; herefore,
a high-priced stock with a large number of shares outstanding
has more impact than a low-priced stock with only a
few shares outstanding. The S&P 500 is a value weighted
index.
Maturity: Period within
which a futures contract can be settled by delivery
of the actuals.
Maximum Price Fluctuation:
See Limit (Up or Down).
Member Rate: Commission
charged for the execution of an order for a person who
is a member of the exchange.
Minimum Price Contract:
A hybrid commercial forward contract for agricultural
products which includes a provision guaranteeing the
person making delivery a minimum price for the product.
For agricultural commodities, these contracts became
much morecommon 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:
Smallest increment of price movement possible in trading
a given contract.
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.
Money Market: Short-term
debt instruments.
MARGIN
The amount of money or collateral deposited by a
customer with his broker, or deposited by a broker with
a
clearing member, or by a clearing member with the clearinghouse,
for the purpose of insuring the broker or clearinghouse
against adverse price movement on open
futures contracts. The margin is not partial payment
on a
purchase. 1) Initial margin is the minimum deposit per
contract required when a futures position is opened.
2)
Maintenance margin is a sum which must be maintained
on deposit at all times. If the equity in a customers’
account drops to, or under, that level because of an
adverse price movement, the clearing member must
issue a margin call to restore the customers’
equity.
Margins are set by the Exchange based on its analysis
of
price risk volatility in the market at that time. (See
Variation Margin; Refinery Margin.)
MARGIN CALL
A demand for additional margin funds when
futures prices move in an adverse direction to a trader’s
position, or if margin requirements are increased. Buyers
of options are not subject to margin calls.
MARKED-TO-MARKET
Daily cash flow system used by U.S. futures
exchanges to maintain a minimum level of margin equity
for a given futures or options contract position by
calculating
the gain or loss in each contract position resulting
from changes in the price of the futures or options
contracts
each trading day.
MARKET CORRECTION
In technical analysis, a small reversal in prices following
a significant trending period.
MARKET-IF-TOUCHED
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.
MARKET MAKER
An independent trader or trading firm which is
prepared to buy and sell futures or options contracts
in a
designated market. Market makers provide a two-sided
(bid and ask) market and greater liquidity. See specialist
market maker for information on a specific program introduced
by the New York Mercantile Exchange in 1999.
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 ORDER
An order to be filled immediately at the current
market price.
28
MAXIMUM PRICE FLUCTUATION
A commodity exchange’s established maximum
limits for movements in futures prices during any one
trading session.
MCF
Thousand cubic feet.
MEGAWATT (MW)
One million watts.
MEGAWATT HOUR (MWH)
Amount of electricity needed to light 10,000 100-
watt light bulbs for a one-hour period. One million
watts
used for one hour.
MIDDLE DISTILLATE
Hydrocarbons that are in the so-called “middle
boiling range” of refinery distillation. Examples
are heating
oil, diesel fuels, and kerosene.
MINIMUM PRICE FLUCTUATION
Minimum unit by which a futures price or an
options premium can fluctuate per trade, also known
as
tick size.
MMBTU
One million British thermal units, equal to one
dekatherm. Approximately equal to a thousand cubic feet
(Mcf) of natural gas.
MOGAS
Industry slang for motor gasoline.
MOTOR GASOLINE
A complex mixture of relatively volatile hydrocarbons,
with or without small quantities of additives, which
have been blended to form a fuel suitable for use in
spark-ignition engines.
MOTOR OIL
Refined lubricating oil, usually containing additives,
used in internal combustion engin.
MAJOR
A term broadly applied to those multinational oil
companies which by virtue of size, age, or degree of
integration
are among the preeminent companies in the international
petroleum industry.
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N
Naked Call: See Naked
Option.
Naked Option: The sale
of a call or put option without holding an offsetting
position in the underlying.
Naked Put: See Naked
Option.
National Futures Association
(NFA): A self regulatory organization composed of futures
commission merchants, commodity pool operators, commodity
trading advisors, introducing brokers, leverage transaction
merchants, commodity exchanges, commercial firms, and
banks, that is responsible--under CFTC oversight--for
certain aspects of the regulation of FCMs, CPOs, IBs,
LTMs, and their associated persons, focusing primarily
on the qualifications and proficiency, financial condition,
retail sales practices, and business conduct of these
futures professionals.
Nearbys: The nearest
delivery months of a commodity futures market.
Nearby Delivery Month:
The month of the futures contract closest to maturity.
Negative Carry: The cost
of financing a financial instrument (the short-term
rate of interest), when the cost is above the current
return of the financial instrument. See Carrying Charges
and Positive Carry.
Net Position: The difference
between the open long contracts and the open short ontracts
held by a trader in any one commodity or futures contract.
NFA: National Futures
Association.
NOB Spread: Note Against
Bond. A futures spread trade involving the buying (selling)
of a Treasury note futures contract and the selling
(buying) of a Treasury bond futures contract.
Non-Member Traders: Speculators
and hedgers who trade on the exchange through a member
but do not hold exchange memberships.
Nominal Price (or Nominal
Quotation): Computed price quotation on futures for
a period in which no actual trading took place, usually
an average of bid and asked prices.Notice Day: Any day
on which notices of intent to deliver on futures contracts
may be issued.
Notice of Delivery: A
notice that must be presented by the seller of a futures
contract to the clearinghouse. The clearinghouse then
assigns the notice and subsequent delivery instrument
to a buyer. Also Notice of Intention to Deliver.
Notional Amount: The
amount (in an interest rate swap, forward rate agreement,
or other derivative instrument) or each of the amounts
(in a currency swap) to which interest rates are applied
(whether or not expressed as a rate or stated on a coupon
basis) in order to calculate periodic payment obligations.
Also called the notional principal amount, the contract
amount, the reference amount, and the currency amount.
NAKED
A long or short market position taken without having
an offsetting short or long position. For options, the
term “uncovered” is used interchangeably
and refers to a
position that is taken without the benefit of an offsetting
position in the futures market.
A trader who executes one side of a spread is
said to be naked until he executes the other side.
NAPHTHA
A volatile, colorless product of petroleum distillation.
Used primarily as a paint solvent, cleaning fluid, and
blendstock in gasoline production.
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NAPHTHENES
One of the three basic hydrocarbon classifications
found naturally in crude oil. Naphthenes are widely
used
as petrochemical feedstocks.
NATIONAL FUTURES ASSOCIATION (NFA)
Futures industry trade association which
promulgates rules of conduct and mediates disputes
between customers and brokers.
NATURAL GAS
A naturally occurring mixture of hydrocarbon and
non-hydrocarbon gases found in porous rock formations.
Its principal component is methane.
NATURAL GAS LIQUIDS (NGL)
A general term for all liquid products separated
from natural gas in a gas processing plant. NGLs include
propane, butane, ethane, and natural gasoline.
NETBACK
Industry term referring to the net free on board
cost of product offered on a delivered or cost, insurance,
and freight basis. It is derived by subtracting all
costs of
shipment from the landed price.
NET POSITION
The difference between an individual or firm’s
open long contracts and open short contracts in any
one
commodity.
NEUTRAL SPREAD
Another name for a delta neutral spread. Spreads
may also be lot neutral, where the total number of long
contracts and the total number of short contracts of
the
same type are approximately equal.
NOMINAL PRICE
The declared price for a futures month sometimes
used in place of a closing price when no recent trading
has taken place in that particular delivery month; usually
an average of the bid and asked prices.
NOMINATION
1) The process whereby the holder of a long
Exchange petroleum product futures position who has
elected to stand for delivery tells the seller (the
short)
where the product is to be delivered and the method
of
transport. 2) A shipper’s offer to move gas on
a pipeline
during a given period. Most nominations are made on
a
daily basis, although mid-day hourly nominations are
possible on some systems. 3) A request for a physical
quantity of gas under a specific purchase, sales or
transportation
agreement or for all contracts at a specific
point.
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NON-ASSOCIATED GAS
Natural gas in a reservoir which contains no crude
oil.
NON-FIRM ENERGY
The quality sale of transmission service offered to
customers that anticipates possible interruption of
deliveries.
NORTH AMERICA ELECTRIC RELIABILITY COUNCIL
(NERC)
A group formed in 1968 by the electric utility
industry to promote the reliability and adequacy of
bulk
power supply in the electric utility systems of North
America. NERC consists of 10 regional reliability councils
and encompasses essentially all the power regions of
the
contiguous United States, Canada, and Mexico. The
NERC regions are: Alaskan System Coordination Council
(ASCC); East Central Area Reliability Coordination
Agreement (ECAR); Electric Reliability Council of Texas
(ERCOT); Mid-America Interpool Network (MAIN); Mid-
Atlantic Area Council, (MAAC); Mid-Continent Area
Power Pool (MAPP); Northeast Power Coordinating
Council (NPCC); Southeastern Electric Reliability Council
(SERC); Southwest Power Pool (SPP); Western System
Coordinating Council (WSCC).
NOTICE DAY
The day on which an exchange clearinghouse
issues delivery allocation notices to clearing members.
See delivery.
NOTIONAL SETTLEMENT
A reference price based on trading activity during
a certain range close to the end of the day that is
used to
calculate the maximum daily price fluctuation for trading
on the NYMEX ACCESS® electronic trading system when
the regular settlement price has not been established
in
time for the start of the NYMEX ACCESS® session.
The
system is then updated with final settlement prices
later
in the session.
NYMEX ACCESS®
NYMEX ACCESS® is an international electronic
trading system offered by the New York Mercantile
Exchange. The Exchange provides the user with the
equipment, software, and services. ACCESS stands for
American Computerized Commodity Exchange System
and Services.
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O
Offer: An indication
of willingness to sell at a given price; opposite of
bid.
Offset or Offsetting:
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. Offsetting eliminates the
obligation to make or take delivery. See Cover.
Omnibus Account: An account
carried by one futures commission merchant with another
futures commission merchant in which the transactions
of two or more persons are combined and carried in the
name of the originating broker rather than designated
separately.
On Track (or Track Country
Station): (1) A type of deferred delivery in which the
price is set f.o.b. seller's location, and the buyer
agrees to pay freight costs to his destination; (2)
commodities loaded in railroad cars on track.
Opening Price (or Range):
The price (or price range) recorded during the period
designated by the exchange as the official opening.
Opening, The: The period
at the beginning of the trading session officially designated
bythe 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. See Good 'Til
Canceled and Good This Week orders.
Open Outcry: Method of
public auction required to make bids and offers in the
trading pits or rings of commodity trading futures exchanges.
This method is supposed to assure the buyer and seller
that they will obtain the best price available. It is
not similar to the over-the-counter market for securities
where a market maker determines the price, noris it
in any way similar to the way art and objects are auctioned
off by an auctioneer. In open outcry, traders and brokers
in the pit cry out to one another by shouting and hand
signals in order to match buy and sell orders.
Option: (1) An option
is a unilateral contract which gives the buyer the right
to buy or sell a specified quantity of the underlying
commodity or financial security at a specific price
within a specified period of time, regardless of the
market price of that commodity or financial security.
Also see Put and Call; (2) A term sometimes erroneously
applied to a futures contract. It may refer to a specific
delivery month, as the "July Option."
Option Buyer: The person
who buys calls, puts, or any combination of calls and
puts.
Option Grantor: The person
who originates an option contract by promising to performa
certain obligation in return for the price of the option.
Also known as Option Writer.
Original Margin: Term
applied to the initial deposit of margin money each
clearing member firm is required to make according to
clearinghouse rules based upon positions carried, determined
separately for customer and proprietary positions; similar
in concept to the initial margin or security deposit
required of customers by exchange regulations. See Initial
Margin.
Out-Of-The-Money: A term
used to describe an option that has no intrinsic value.
For example, a call at $400 on gold trading at $390
is out-of-the-money 10 dollars.
Out Trade: A trade which
cannot be cleared by a clearinghouse because the trade
data submitted by the two clearing members involved
in the trade differs in some respect e.g., price and/or
quantity). In such cases, the two clearing members or
brokers 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 brokers 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 on the same trading day in 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.
OCTANE NUMBER
A measure of the resistance of gasoline to preignite
or knock when burned in an internal combustion
engine.
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OFFER
A motion to sell a futures or options contract at a
specified price. Opposite of bid.
OFF-PEAK
The load for the remaining hours that are not onpeak.
(See On-peak.)
OFFSET
A transaction which liquidates or closes out an
open contract position. In spread positions, one side
offsets
the other without liquidating the entire position. Risk
is reduced when one side offsets the other.
OMNIBUS ACCOUNT
An account carried by one futures commission
merchant with another in which the transactions of two
or
more persons are combined rather than designated separately
and the identity of the individual accounts is not
disclosed.
ON-PEAK
Refers to hours of the business day when demand
is at its peak. For example, the NYMEX Division
California-Oregon border and Palo Verde electricity
futures contracts define the on-peak period from the
hour
ending 0700 to the hour ending 2200 (6 A.M. to 10 P.M.),
Pacific prevailing time. In the physical market, on-peak
definitions vary by North America Electric Reliability
Council region. Can also refer to the number of business
days in any one month on which it is contracted that
electricity is delivered. Patterns of the number of
on-peak
days in a week generally also vary by region.
ONE-CANCELS-THE-OTHER
Two orders submitted simultaneously, either of
which may be filled. If one order is filled, the other
is considered
to be canceled.
OPEN INTEREST OR COMMITMENT
The number of open or outstanding contracts for
which an individual or entity is obligated to the Exchange
because that individual or entity has not yet made an
offsetting
sale or purchase, an actual contract delivery, or, in
the case of options, exercised the option.
OPEN ORDER
A resting order that is good until canceled.
OPEN OUTCRY
A method of two-way public auction through
which verbal bids, offers, and trades are made in the
trading rings of commodity exchanges.
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OPENING PRICE
The price for a given commodity futures contract
that is generated by open trading during the opening
range of trading on a commodity exchange.
OPENING RANGE
The range of prices determined by trades executed
within the opening period for each trading
session.
OPTIONS
A contract which gives the holder the right, but
not the obligation, to purchase or to sell the underlying
futures contract at a specified price within a specified
period of time in exchange for a one-time premium payment.
The contract also obligates the writer, who
receives the premium, to meet these obligations.
ORIGINAL MARGIN
The initial deposit of funds, as good faith monies,
when a position is initiated in order to guarantee fulfillment
of its obligations. Also known as initial margin.
OUT-OF-THE-MONEY
An option which has no intrinsic value. For calls,
an option whose exercise price is above the market price
of the underlying future. For puts, an option whose
exercise
price is below the futures price.
OUTAGE
A planned outage is the shutdown of a generating
unit, transmission line, or other facility for inspection
and
maintenance, in accordance with an advance schedule.
A forced outage is the unplanned loss of service of
a
generating unit, transmission line, or other facility
for purposes
other than inspection and maintenance.
OVERBOUGHT
A technical opinion that the market price has risen
too steeply and too fast in relation to underlying fundamental
factors.
OVERSOLD
A technical opinion that the market price has
declined too steeply and too fast in relation to underlying
fundamental factors.
OVER-THE-COUNTER (OTC)
A term referring to derivative transactions that are
conducted outside the realm of regulated exchanges.
Transactions are conducted directly through banks or
brokerage houses, or by principal-to-principal in the
over-the-counter market.
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OVERWRITE
The writing of more options than one expects to
have exercised. Call options are overwritten because
the
writer considers the underlying overvalued. Put options
are overwritten because the underlying is considered
undervalued.
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P
PAD (OR PADD)
Petroleum Administration for Defense District.
The United States is divided into five distinct marketing
regions in which prices might differ due to variations
in
the supply or demand.
PAPER BARRELS
A term used to denote trade in non-physical oil
(futures, forwards, swaps) markets which give a buyer
or
seller the right to a certain quantity and quality of
crude
oil or refined products at a future date, but not to
any
specific physical lot.
PAR OR BASIS GRADE
The grade or grades specified in a given futures
contract for delivery. A contract may permit substitutions
for and deviations from the par grade subject to specified
premiums or discounts.
PETROCHEMICAL
An intermediate chemical derived from petroleum,
hydrocarbon liquids, or natural gas, such as ethylene,
propylene, benzene, toluene, and xylene.
PETROLEUM
A generic name for hydrocarbons, including crude
oil, natural gas liquids, refined, and product derivatives.
PIN RISK
The risk to a trader who has sold an option that,
at expiration, has a strike price identical to, or pinned
to,
the underlying futures price. In this case, the trader
will
not know whether he will be required to assume his
options obligations.
PIPELINE
A pipe through which oil or natural gas is pumped
between two points, either offshore or onshore.
PIT OR RING
The place on the floor of an exchange where a
commodity futures or options contract is traded by open
outcry.
PLATINUM GROUP METALS (PGM)
Platinum and related metals, including palladium,
rhodium, ruthenium, and iridium.
POINT OR TICK
The smallest monetary unit of change in a futures
price or an options premium.
34
POSITION
The net total of a trader’s open contracts, either
long or short, in a particular underlying commodity.
POSITION LIMIT
For a single trader or firm, the maximum number
of permitted outstanding obligations in a particular
commodity.
POSTED PRICE
The price some refiners will pay for crude of a certain
API gravity from a particular field or area.
POUR POINTS
A temperature 5o Fahrenheit higher than the temperature
at which crude oil or a refined product stops
flowing.
POWER MARKETER
A wholesale power entity that has registered with
the Federal Energy Regulatory Commission to buy and
sell wholesale power from and to each other and other
public entities at market-derived prices. Power marketing
companies include investor-owned, utility-affiliated
companies;
natural gas marketing companies; financial intermediaries;
independent power producers; and
entrepreneurs. Typically, power marketers do not own
generating facilities.
POWER POOL
Cooperation between two or more interconnected
electric power systems.
PREMIUM
1) The price or cost of an options contract determined
competitively by buyers and sellers. 2) An upward
adjustment in price allowed for delivery of a commodity
of higher grade against a futures contract.
PRICE DISCOVERY
The manner of making prices visible and readily
available to the public.
PRICE GAPS
A chart pattern of the price movement of a commodity
when the low price of one bar on a chart is higher
than the high of the preceding bar (or inversely, the
high
is lower than the low of the preceding bar); depicting
a
price or price range where no trades take place. The
price patterns are used by technical analysts to try
to
recognize changes in a price trend.
PRIMARY STOCKS
Stocks of crude oil or refined products held in
storage at leases, refineries, natural gas processing
plants, pipelines, tankfarms, and bulk terminals that
can
store at least 50,000 barrels of refined products.
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PROCESSING PLANT
Plant which separates natural gas into methane
and the various other gases such as, propane, butane,
ethanewa.
PROMPT BARREL
Product which will move or become available
within three to four days.
PROPANE
A natural hydrocarbon occurring in a gaseous
state under normal atmospheric pressure and temperature,
however, propane is usually liquefied through pressurization
for transportation and storage. Propane is
primarily used for rural heating and cooking and as
a fuel
gas in areas not serviced by natural gas mains and as
a
petrochemical feed stock.
PUMP-OVER
An intra- or inter-facility transfer. For example,
when one pipeline pumps crude oil or refined products
from its tanks or mainline into the mainline or storage
tank of the receiving pipeline.
PUT OPTION
An option which gives the buyer, or holder, the
right, but not the obligation, to sell a futures contract
at a
specific price within a specific period of time in exchange
for a one-time premium payment. It obligates the seller,
or writer, of the option to buy the underlying futures
contract
at the designated price, should an option be exercised
at that price. See call option.
PAD (OR PADD)
Petroleum Administration for Defense District.
The United States is divided into five distinct marketing
regions in which prices might differ due to variations
in
the supply or demand.
PAPER BARRELS
A term used to denote trade in non-physical oil
(futures, forwards, swaps) markets which give a buyer
or
seller the right to a certain quantity and quality of
crude
oil or refined products at a future date, but not to
any
specific physical lot.
PAR OR BASIS GRADE
The grade or grades specified in a given futures
contract for delivery. A contract may permit substitutions
for and deviations from the par grade subject to specified
premiums or discounts.
PETROCHEMICAL
An intermediate chemical derived from petroleum,
hydrocarbon liquids, or natural gas, such as ethylene,
propylene, benzene, toluene, and xylene.
PETROLEUM
A generic name for hydrocarbons, including crude
oil, natural gas liquids, refined, and product derivatives.
PIN RISK
The risk to a trader who has sold an option that,
at expiration, has a strike price identical to, or pinned
to,
the underlying futures price. In this case, the trader
will
not know whether he will be required to assume his
options obligations.
PIPELINE
A pipe through which oil or natural gas is pumped
between two points, either offshore or onshore.
PIT OR RING
The place on the floor of an exchange where a
commodity futures or options contract is traded by open
outcry.
PLATINUM GROUP METALS (PGM)
Platinum and related metals, including palladium,
rhodium, ruthenium, and iridium.
POINT OR TICK
The smallest monetary unit of change in a futures
price or an options premium.
34
POSITION
The net total of a trader’s open contracts, either
long or short, in a particular underlying commodity.
POSITION LIMIT
For a single trader or firm, the maximum number
of permitted outstanding obligations in a particular
commodity.
POSTED PRICE
The price some refiners will pay for crude of a certain
API gravity from a particular field or area.
POUR POINTS
A temperature 5o Fahrenheit higher than the temperature
at which crude oil or a refined product stops
flowing.
POWER MARKETER
A wholesale power entity that has registered with
the Federal Energy Regulatory Commission to buy and
sell wholesale power from and to each other and other
public entities at market-derived prices. Power marketing
companies include investor-owned, utility-affiliated
companies;
natural gas marketing companies; financial intermediaries;
independent power producers; and
entrepreneurs. Typically, power marketers do not own
generating facilities.
POWER POOL
Cooperation between two or more interconnected
electric power systems.
PREMIUM
1) The price or cost of an options contract determined
competitively by buyers and sellers. 2) An upward
adjustment in price allowed for delivery of a commodity
of higher grade against a futures contract.
PRICE DISCOVERY
The manner of making prices visible and readily
available to the public.
PRICE GAPS
A chart pattern of the price movement of a commodity
when the low price of one bar on a chart is higher
than the high of the preceding bar (or inversely, the
high
is lower than the low of the preceding bar); depicting
a
price or price range where no trades take place. The
price patterns are used by technical analysts to try
to
recognize changes in a price trend.
PRIMARY STOCKS
Stocks of crude oil or refined products held in
storage at leases, refineries, natural gas processing
plants, pipelines, tankfarms, and bulk terminals that
can
store at least 50,000 barrels of refined products.
35
PROCESSING PLANT
Plant which separates natural gas into methane
and the various other gases such as, propane, butane,
ethanewa.
PROMPT BARREL
Product which will move or become available
within three to four days.
PROPANE
A natural hydrocarbon occurring in a gaseous
state under normal atmospheric pressure and temperature,
however, propane is usually liquefied through pressurization
for transportation and storage. Propane is
primarily used for rural heating and cooking and as
a fuel
gas in areas not serviced by natural gas mains and as
a
petrochemical feed stock.
PUMP-OVER
An intra- or inter-facility transfer. For example,
when one pipeline pumps crude oil or refined products
from its tanks or mainline into the mainline or storage
tank of the receiving pipeline.
PUT OPTION
An option which gives the buyer, or holder, the
right, but not the obligation, to sell a futures contract
at a
specific price within a specific period of time in exchange
for a one-time premium payment. It obligates the seller,
or writer, of the option to buy the underlying futures
contract
at the designated price, should an option be exercised
at that price. See call option.
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Q
QUALIFYING FACILITY (QF)
A generator or small power producer that meets
certain ownership, operating, and efficiency criteria
established by the Federal Energy Regulatory
Commission, and has filed with FERC for QF status or
has self-certified. QFs are physical generating facilities.
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R
RACK PRICE
Price charged by a supplier to a customer that
buys transport truck lots at a terminal, on a free on
board
basis.
RALLY
An advancing price movement following a decline
in a market.
RANGE
The difference between the highest and lowest
prices recorded during a given trading period.
RATIO SPREAD
Any spread where the number of long market contracts
and the number of short market contracts are
unequal.
36
REFINER-DISTRIBUTOR
A company that acts as a wholesaler of gasoline,
heating oil, or other products which operates its own
refinery; may also retail and buy additional supplies
to
supplement its own refining output.
REFINERY
A plant used to process crude oil or metals. An oil
refinery separates the fractions of crude oil and converts
them into usable products. A metals refinery removes
impurities, bringing the metal up to designated purity
specifications.
REFINERY MARGIN
The difference between a refinery’s cost to produce
a product and the amount it will procure from the
sale of the product.
REFORMING PROCESS
The use of heat and catalysts to effect the
rearrangement of certain hydrocarbon molecules without
altering their composition appreciably; for example,
the
conversion of low-octane naphthas or gasolines into
high-octane number products.
REPORTABLE POSITION
The number of futures contracts, as determined
by the Exchange or the Commodity Futures Trading
Commission, above which a customer must be identified
daily to the Exchange and to the Commission with regard
to the size of his position by commodity, by delivery
month, and by purpose of the trading.
RESIDUAL FUEL OIL
Heavy fuel oil produced from the residue in the
fractional distillation process rather than from the
distilled
fractions.
RESISTANCE
Opposite of support.
RESTING ORDER
An order away from the market, waiting to be executed.
ROLLOVER
A special futures straddle trading procedure
involving the shift of one month of a straddle into
another
future month while maintaining the other contract month
of the original spread position. The shift can take
place in
either the long or short straddle month.
ROUND LOT
A quantity of a commodity equal in size to the
corresponding futures contract for the commodity, as
distinguished from a job lot, which may be larger or
smaller than the contract.
37
ROUND-TURN
The completion of both a purchase and sale of a
commodity futures contract.
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S
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, thus creating market liquidity.
SECURITIES AND EXCHANGE COMMISSION (SEC)
An independent agency that administers federal
securities laws and regulates the firms that buy and
sell
those securities.
SELF-REGULATORY ORGANIZATION
Although United States commodity exchanges
ultimately function under the auspices of the Commodity
Futures Trading Commission, daily operations are regulated
from within the organization. Trade, market, and
financial surveillance are performed to ensure the utmost
integrity of futures trading.
SELLERS’ 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. Opposite
of
buyer’s market.
SELLING HEDGE (OR SHORT HEDGE)
Selling futures contracts to protect against possible
decreased prices of commodities. Also see hedging.
SERIAL EXPIRATION
Options on the same underlying futures contract
which expire in more than one month. NYMEX Division
platinum options have serial expiration.
SERIES
All options of the same class which share a common
strike price.
SETTLEMENT OR SETTLING PRICE
The price established by the Exchange settlement
committee at the close of each trading session as the
official price to be used by the clearinghouse in determining
net gains or losses, margin requirements, and the
next day’s price limits. The term “settlement
price” is
often used as an approximate equivalent to the term
“closing price.” The close in futures trading
refers to a
brief period at the end of the day, during which transactions
frequently take place quickly and at a range of
prices immediately before the bell. Therefore, there
frequently
is no single closing price, but a range of prices. In
months with significant activity, the settlement price
is
38
derived by calculating the weighted average of the prices
at which trades were conducted during that period.
SHORT
1) The market position of a futures contract seller
whose sale obligates him to deliver the commodity
unless he liquidates his contract by an offsetting purchase.
2) A trader whose net position in the futures market
shows an excess of open sales over open purchases.
3) The holder of a short position. 4) In the options
market,
the position of the seller of a call or a put option.
The
short in the options market is obliged to take a futures
position if he is assigned for exercise. Opposite of
long.
SHORT SELLING
Selling a contract with the idea of delivering or of
buying to offset it at a later date.
SHORT-THE-BASIS
A person or firm that has a commitment to sell in
the cash or spot markets and hedges through the purchase
of futures is said to be short-the-basis.
SHORT TON
A weight measurement equaling 2,000 pounds.
SOUR OR SWEET CRUDE
Industry terms which denote the relative degree of
a given crude oil’s sulfur content. Sour crude
refers to
those crudes with a comparatively high sulfur content,
0.5% by weight and above; sweet refers to those crudes
with sulfur content of less than 0.5%.
SOUR GAS
Natural gas found with a sufficiently high quantity
of sulfur to require purifying prior to shipment or
use.
SOW
A molded shape consisting of 600 to 1,575
pounds of aluminum.
STANDARD PORTFOLIO ANALYSIS (SPAN)
The Standard Portfolio Analysis of Risk system
developed by the Chicago Mercantile Exchange and now
utilized by the New York Mercantile Exchange and most
other commodity exchanges to calculate margin requirements.
SPARK SPREAD
A trading strategy that reflects the diff e rence in
value
between the cost of the energy used to produce electricity
and the electricity. Hedging the spark spread curre
n t l y
involves the simultaneous purchase of natural gas contracts
and sale of electricity contracts, or vice-versa, allowing
market
participants to pro c u re a profit on the margin between
the contracts, to hedge the cost of producing electricity.
The
s p read itself is the diff e rence between the market
value of
39
electricity and the cost of natural gas calculated in
megawatt hours. The introduction of the coal futures
contract
will expand the spark spread trading opport u n i t
i e s .
SPECIALIST MARKET-MAKER
A New York Mercantile Exchange-sponsored program
under which a designated trader provides liquidity
in a new or stagnant market by facilitating any trade
within an established bid/ask spread and accepting all
limit orders it is requested to execute. In return for
the
specialist market maker’s commitment and to compensate
for the risk it will incur, the market’s proprietary
account gets priority of execution in a certain percentage
of the trades in the market, and the Exchange pays it
an
execution fee for every outside order it fills, as well
as
helping to offset some of its direct floor operation
costs.
The function of the specialist market maker lasts until
average daily volume and open interest in the contract
reaches a predetermined level.
SPECIFICATIONS
1) Contract terms specified by the Exchange. 2)
Term referring to the properties of a given crude oil
or
refined petroleum product, which are “specified”
since
they often vary widely even within the same grade of
product. In the normal process of negotiation, the seller
will guarantee the buyer that the product or crude to
be
sold will meet certain specified limits. Generally,
the
major properties of oil that are guaranteed are API
gravity,
sulfur, pour point, viscosity, and BS&W.
SP E C I F I C GR AV I T Y
The ratio of the density of a substance at 60o
F a h renheit to the density of water at the same temperature
.
SPECULATIVE POSITION LIMIT
The maximum position, either net long or net
short, in one commodity futures or options, or in all
futures or options of one commodity combined, which
may be held or controlled by an entity without a hedge
exemption as prescribed by an exchange.
SPECULATOR
A trader who hopes to profit from the specific
directional price move of a futures or options contract,
or
commodity.
SPOT
Term which describes one-time open market cash
transaction, where a commodity is purchased “on
the
spot” at current market rates. Spot transactions
are in
contrast to term sales, which specify a steady supply
of
product over a period of time.
SPOT MARKET
A market of immediate delivery of product and
immediate payment.
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SPOT MONTH
The futures contract closest to maturity. The
nearby delivery month.
SPREAD (FUTURES)
The simultaneous purchase and sale of futures
contracts for different months, different commodities,
or
different grades of the same commodity.
SPREAD (OPTIONS)
The purchase and sale of options which vary in
terms of type (call or put), strike prices, expiration
dates,
or both. May also refer to an options contract purchase
(sale) and the simultaneous sale (purchase) of a futures
contract for the same underlying commodity.
STOCK-TYPE SETTLEMENT
A settlement pro c e d u re in which the purchase of
a
contract re q u i res immediate and full payment by
the buyer
to the seller. In stock-type settlement, the actual
cash
p rofit or loss from a trade is not realized until the
position is
liquidated. Exchange options have this type of settlement
p ro c e d u re, which differs from that in the futures
market
w h e re gains and losses are realized on a daily basis.
STOP ORDER
An order that becomes a market order when the
market reaches the elected price of the stop ord e r.
See
market ord e r.
STOP LIMIT ORDER
An order that goes into force as soon as there is a
trade at the specified stop price. The order, however,
can
only be filled at the limit price or better. The stop
price
and the limit price can be the same or different. The
stop
price is the price level specified in the order.
STOP-LOSS
A resting order designed to close out a losing
position when the price reaches a level specified in
the
order. It becomes an at-the-market order when the “stop”
price is reached. Individuals also use stops to enter
the
market when the prices reach a specified level.
STRADDLE (FUTURES)
Also known as a spread, the purchase of one
futures month against the sale of another futures month
of the same commodity. A straddle trade is based on
a
price relationship between the two months.
STRADDLE (OPTIONS)
The purchase or sale of both a put and a call having
the same strike price and expiration date. The buyer
of a straddle benefits from increased volatility, and
the
seller benefits from decreased volatility.
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STRANGLE
An options position consisting of the purchase or
sale of put and call options having the same expiration
but different strike prices.
STRIKE PRICE
The price at which the underlying futures contract
is bought or sold in the event an options contract is
exercised.
Also called an exercise price.
STRIP
The simultaneous purchase (or sale) of an equal
number of futures positions in consecutive months. The
average of the prices for the futures contracts bought
(or
sold) is the price level of the hedge. A six-month strip,
for
example, consists of an equal number of futures contracts
for each of six consecutive contract months. Also
known as a calendar strip.
SUBBITUMINOUS COAL
A dull black coal with a higher heating value than
lignite. It is found primarily in the western United
States.
SULFUR
An element that is present in some oil, gas, and
coal as an impurity in the form of its various compounds.
SUPPORT
In technical analysis, a price area where new buying
is likely to come in and stem any decline.
SWAP
A custom-tailored, individually negotiated transaction
designed to manage financial risk, usually over a
period of one to 12 years. Swaps can be conducted
directly by two counterparties, or through a third party
such as a bank or brokerage house. The writer of the
swap, such as a bank or brokerage house, may elect to
assume the risk itself, or manage its own market exposure
on an exchange. Swap transactions include interest
rate swaps, currency swaps, and price swaps for commodities,
including energy and metals. In a typical commodity
or price swap, parties exchange payments based
on changes in the price of a commodity or a market
index, while fixing the price they effectively pay for
the
physical commodity. The transaction enables each party
to manage exposure to commodity prices or index values.
Settlements are usually made in cash.
SWEET CRUDE
Crude oil typically containing less than 1% sulfur,
by weight.
42
SYNTHETIC FUTURES
A position created by combining call and put
options. A synthetic long futures position is created
by
combining a long call options contract and a short put
options contract for the same expiration date and the
same strike price. A synthetic short futures position
is
created by combining a long put and a short call with
the
same expiration date and the same strike price.
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T
Taker: The buyer of an
option contract.
T-Bond: See Treasury
Bond.
Technical Analysis: An
approach to forecasting commodity or futures prices
which examines patterns of price change, rates of change,
and changes in volume of trading and open interest,
without regard to underlying fundamental market factors.
Someone who follow technical rules (called a technician)
believes that futures market prices will anticipate
any changes in fundamentals.
Ted Spread: The difference
between the price of the three-month U.S. Treasury bill
futures contract and the price of the three-month Eurodollar
time deposit futures contract with the same expiration
month.
Tender: To give notice
to the clearinghouse of the intention to initiate delivery
of the physical commodity in satisfaction of the futures
contract. Also see Retender.
Tenderable Grades: See
Contract Grades.
Terminal Elevator: An
elevator located at a point of greatest accumulation
in the movement of agricultural products which stores
the commodity or moves it to processors.
Terminal Market: Usually
synonymous with commodity exchange or futures market,
specifically in the United Kingdom.
Theta: The derivative
of the option price equation with respect to the remaining
time to expiration of the option. A measure of the sensitivity
of the value of the option to the passage of time.
Tick: Refers to a minimum
change in price up or down. See Point.
Time-of-Day Order: This
is an order which is to be executed at a given minute
in the session. For example, "Sell 10 March corn
at 12:30 p.m."
Time Spread: The selling
of a nearby option and buying of a more deferred option
with the same strike price.
Time Value: That portion
of an option's premium that exceeds the intrinsic value.
The time value of an option reflects the probability
that the option will move into-the-money. Therefore,
the longer the time remaining until expiration of the
option, the greater its time value. Also called Extrinsic
Value.
To-Arrive Contract: A
transaction providing for subsequent delivery within
a stipulated time limit of a specific grade of a commodity.
Trade Option: A commodity
option transaction in which the taker is reasonably
believed by the writer to be engaged in business involving
use of that commodity or a related commodity.
Trader: (1) A merchant
involved in cash commodities; (2) a professional speculator
who trades for his own account.
Transaction: The entry
or liquidation of a trade.
Transfer Trades: Entries
made upon the books of futures commission merchants
for the purpose of: (1) transferring existing trades
from one account to another within the same office where
no change in ownership is involved; (2) transferring
existing trades from the books of one commission merchant
to the books of another commission merchant where no
change in ownership is involved. Also called Ex-Pit
Transactions.
Transferable Option (or
Contract): A contract which permits a position in the
option market to be offset by a transaction on the opposite
side of the market in the same contract.
Transfer Notice: A term
used on some exchanges to describe a notice of delivery.
See Retender.
Treasury Bills: Short-term
U.S. government obligations, generally issued with 13,
26 or 52-week maturities. T-Bills are a fixed income
asset and issued at discount.
Treasury Bonds (or T-Bond):
Long-term obligations of the U.S. government with maturities
of more than 7 years, which pay interest semiannually
until they mature or are called, at which time the principal
and the final interest payment is paid to the investor.
Treasury Notes: Same
as Treasury Bonds except that Treasury Notes are medium-term
and not callable.
Trend: The general direction,
either upward or downward, in which prices have been
moving.
Trendline: In charting,
a line drawn across the bottom or top of a price chart
indicating the direction or trend of price movement.
If up, the trendline is called bullish; if down, it
is called bearish.
T-BARS
A molded shape consisting of 600 to 1,575
pounds of aluminum.
TANK TRAIN
A procedure in the rail shipment of crude oil,
refined products, and other liquids developed by General
American Transportation (GATX). “Tank Train”
tank cars
are interconnected, which permits loading and unloading
of the entire train of cars from one connection.
TARIFF
A schedule of rates or charges permitted a common
carrier or utility; pipeline tariffs are the charges
made
by pipelines for transporting crude oil, refined products,
or natural gas from an origin to a destination.
TECHNICAL ANALYSIS
An approach to forecasting commodity prices
which examines patterns of price change, rates of
change, and changes in trading volume and open interest,
without regard to underlying fundamental market
conditions.
THEORETICAL VALUE
An option’s value generated by a mathematical
model given certain prior assumptions about the term
of
the options contract, the characteristics of the underlying
futures contract, and prevailing interest rates.
THERM
100,000 British thermal units. Ten therms, a
dekatherm, is 1 million Btus.
THETA
The sensitivity of an option’s value to a change
in
the amount of time to expiration.
THROUGHPUT
1) A term used to describe the total volume of
raw materials that are processed by a plant such as
an oil
refinery in a given period. 2) The total volume of crude
oil and refined products that are handled by a tank
farm,
pipeline, or terminal loading facility.
43
TICK
A minimum change in price, up or down.
TIME SPREAD
The selling of a nearby options contract and buying
of a more deferred options contract with the same
strike price.
TIME VALUE
Part of the options premium which reflects the
excess over the intrinsic value, or the entire premium
if
there is no intrinsic value. At given price levels,
the
option’s time value will decline until expiration.
It is this
decrease in time value that makes options a wasting
asset.
TRADE HOUSE
A firm which deals in the physical commodity.
TRADE LIMIT MONITORING SYSTEM
The system through which clearing members set
and monitor limits on their customers’ NYMEX ACCESS®
accounts, including maximum order size, maximum position
size per session, and session trading losses.
TRADER WORKSTATION
A NYMEX ACCESS® terminal through which bids
and offers are entered.
TRADING
Buying and selling.
TRADING VOLUME
The number of contracts that change hands during
a specified period of time.
TRANSMISSION
The movement of electricity across power lines.
TRANSMISSION COMPANY
Company that transports gas for resale on its own
behalf or transports gas for others. Also known as a
pipeline company.
TRANSMISSION LINES
High voltage (69,000 to 765,000 volts) electric
power lines running between cities. (See distribution
lines
for comparison.)
TREND
The general direction of price movement.
TRIANGULAR FLAGS
Chart patterns of the price movement of a commodity
when the market consolidates sideways. The
price patterns are used by technical analysts to try
to
recognize changes in a price trend.
44
TROY OUNCE
A unit weight, equal to about 1.1 avoirdupois
ounces. The troy ounce is the traditional unit weight
for
precious metals, believed to be named after a weight
used at the annual fair at Troyes in France in the Middle
Ages.
1 ounce troy = 480 grains = 31.04 grams
1,000 grams = 1 kilogram = 32.15 ounces troy
1,000 kilograms = 1 metric ton = 32,150 ounces troy
TYPE OF OPTION
Either puts or calls.
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U
Underlying (Underlying
Commodity): The commodity, instrument, or futures contract
on which a futures option is based, and which must be
accepted or delivered if the option is exercised. Also,
the cash commodity or financial instrument underlying
a futures contract
UNDERLYING
The stock, commodity, futures contract, or cash
index against which the futures or options contract
is valued.
UNIT TRAIN
A train, usually with several locomotives, devoted
to the transportation of a sole commodity. Unit trains
consisting of 100 hopper cars of coal hold the rough
equivalent of seven jumbo bargeloads, which in turn
equals seven Exchange coal futures contracts.
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V
Variable Limit (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. Most exchanges set limits on the maximum daily
price movement of some of the futures contracts trade
at their exchange. They also retain the right to expand
these limits if the price moves up or down the limit
in one direction for two or there trading days in a
row. If the limits automatically change after repeated
limit moves, they are known as variable limits.
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.
Variation Margin Call:
A margin call from the clearinghouse to a clearing member.
These margin calls are issued when the clearing member’s
margin has been reduced ubstantially by unfavorable
price movements. The variation margin call must be met
within one hour.
Vault Receipt: A document
indicating ownership of a commodity stored in a bank
or other depository and frequently used as a delivery
instrument in precious metal futures contracts.
Visible Supply: Usually
refers to supplies of a commodity in licensed warehouses.
Often includes afloats and all other supplies "in
sight" in producing areas.
Volatile: A market which
is often subject to wide price fluctuations is said
to be volatile. This volatility is often due to a lack
of liquidity. Lack of liquidity is caused by too few
market participants, too little volume, or both.
Volatility Quote Trading:
Refers to the quoting of bids and offers on option contracts
in terms of their implied volatilities rather than as
prices.
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 in the total of physical units, such as bales
or bushels, pounds or dozens.
VARIATION MARGIN
Payment made on a daily or intraday basis by a
clearing member to the clearinghouse to cover losses
created by adverse price movement in positions carried
by the clearing member, calculated separately for customer
and proprietary positions.
VEGA
The sensitivity of an option’s value to a change
in
volatility.
VISCOSITY
A method of measuring a given liquid’s resistance
to flow, usually decreasing with increasing temperatures.
Material with higher viscosity is more resistant to
flow.
VOLATILE
Refers to liquids that change to gas at moderate,
room temperatures.
VOLATILE MARKETS
Commodity markets with exceptional price movements
in both directions, generally driven by the economic
forces of supply and demand as well as world
events.
VOLATILE MATTER
Vapor products (gasses) exclusive of moisture
given off by the combustion of coal.
45
VOLATILITY
The market’s price range and movement within
that range. The direction of the price move, whether
up
or down, is not relevant. Historical volatility indicates
how
much prices have changed in the past and is derived
by
using daily settlement prices for futures. Implied volatility
measures how much the market thinks prices will change
in the future, and is obtained from daily settlement
prices
for options.
VOLUME OR TRADING VOLUME
The total number of contracts traded in a designated
period of time.
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W
Warehouse Receipt: A
document certifying possession of a commodity in a licensed
warehouse that is recognized for delivery purposes by
a commodity futures exchange.
Warrant: An issuer-based
product that gives the buyer the right, but not the
obligation, to buy (in the case of a call) or to sell
(in the case of a put) a stock or a commodity at a set
price during a specified period.
Warrant or Warehouse
Receipt for Metals: Certificate of physical deposit,
which gives title to physical metal in an exchange approved
warehouse.
Wash Sale: Transactions
that give the appearance of purchases and sales but
which are initiated without the intent to make a bona
fide transaction and which generally do not result in
any actual change in ownership. Such sales are prohibited
by the Commodity Exchange Act.
Wash Trading: Entering
into, or purporting to enter into, transactions to give
the appearance that purchases and sales have been made,
without resulting in a change in the trader's market
position.
Weak Hands: When used
in connection with delivery of commodities on futures
contracts, the terms 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.
Wild Card Option: Refers
to a provision of any physical delivery Treasury Bond
or Note futures contract which permits shorts to wait
until as late as 8:00 p.m. on any otice day to announce
their intention to deliver at invoice prices that are
fixed at 2:00 p.m., the close of futures trading, on
that day.
Winter Wheat: Wheat that
is planted in the fall, lies dormant during the winter,
and is harvested beginning about May of the next year.
Writer: The issuer, grantor,
or maker of an option contract.
WEST TEXAS INTERMEDIATE
A global benchmark grade of crude oil deliverable
against the New York Mercantile Exchange light, sweet
crude oil contract and used as the basis for an enymexsm
contract.
WET BARREL
A physical barrel of crude oil or refined product as
opposed to a “paper barrel.”
WET GAS
Natural gas containing condensable hydrocarbons.
WRITER
The seller of an options contract. Also known as
the grantor of the option.
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XYZ
Yield: (1) The production
of a piece of land; e.g., his land yielded 100 bushels
per acre. (2) The return provided by an investment.
Yield Curve: A graphic
representation of market yield for a fixed income security
plotted against the maturity of the security.
YIELD
1) A measure of the annual return on an investment
expressed as a percentage. 2) The proportion of
heavy or light products which can be derived from a
given barrel of crude oil.
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