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Futures and Options Glossary
By: Rick Thachuk   Thursday, August 9, 2007 12:21 AM
This includesbut is not limited to weather, supply & demand, governmentpolicy, and foreign policy.

Fundamental Analysis - Using thefundamentals to analyze and predict future trends of futures andoption prices. Distinguished from Technical Analysis.

Futures Clearing Merchant - (FCM) -An individual or corporation that accepts or solicits orders forfutures and options trading and accepts monies from customers tomaintain accounts. Also responsible for reconciling al tradeswith the exchange clearing house.

Futures Contract - An agreement madeat prices established in the trading pit or electronic trading tobuy or sell a physical commodity sometime in the future. Futurescontracts are standardized agreements, which specify quantity andquality of the physical commodity. They also specify the time ofdelivery and exchange designated point of delivery.

Hedge - See "Buy Hedge" or"Sell Hedge."

Hedging - The use of futures and options toreduce risk of price movement by establishing the oppositeposition of what an individual or corporation plans to do with aparticular physical commodity in the future. An example would bea corn farmer that planted corn in May, sells a contract of DecCorn futures on June 10, to offset risks of prices moving lowerinto the fall because he would be selling harvested corn in thefuture.

High - The highest price establishedfor a futures or options contract at any given time. An examplewould be a high for the day (daily high), or weekly high, monthlyhigh or contract high.

Initial Margin - The amount ofmonies or assets a futures/options trader must have in thetrading account at the time the order is placed as required bythe Futures Clearing Merchant or Exchange. See also"Maintenance Margin."

Inverted market - An abnormalsituation in futures or cash where the front month or months arehigher than distant months in the same crop year. Typically iscaused by a shortage of the physical commodity.

Last Trading Day - The day on whichtrading ceases for the current delivery month of either futuresor options.

Last Notice Day - The final day onwhich notices of intent to deliver on futures contracts may beissued.

Life of Contract - The period fromthe first trading day to the last day of trade (inclusive) for aparticular trading month in futures and options.

Limit Move - The maximum move inprices for a particular contract as permissible during onetrading session, in accordance with exchange rules.

Limit Order - An order in which thecustomer sets a limit on either price and/or time of execution.

Liquid market - A market whereselling and buying can be accomplished with ease, due to thepresence of large open interest or a large number of interestedbuyers and sellers willing and able to trade substantialquantities without a substantial change in price.

Liquidate -The sale of an equalnumber of long futures/options contracts (the same deliverymonth) or buying an equal number of short futures/optionscontracts (the same delivery month) or entering the deliveryprocess by making or taking delivery. See also"Offset."

Liquidation - A characteristic of amarket where holders of long positions, sell (the same deliverymonth), and holders of short positions, buy (the same deliverymonth), and open interest declines.

Long - To buy or have bought afutures contract and/or call options on futures withoutoffsetting a short position. Can also mean to own the physicalcommodity such as a producer with corn in a storage bin for saleat a later date.

Maintenance Margin - The amount ofmoney required to maintain positions in an account.

Margin - Money or assets (such asT-bills) deposited into an account for the purpose of tradingfutures contracts. Margin can vary among different commodityfutures contracts, it can be required when selling options, andmust be maintained in accordance to exchange and FCM policy.

Margin Call - A call or notificationto a customer that their margin account (trading account)requires additional margin to maintain positions in accordancewith policy or exchange rules.

M.I.T. - (Market If Touched) - Anorder that becomes a market order when a particular price isreached. A sell MIT is placed above the market; a buy MIT isplaced below the market.

M.O.C. (Market on Close) - An orderto buy or sell at the end of the trading session at a pricewithin the closing range of prices.

Market on Open - An order with theintention to buy or sell at a price within the opening range ofprices when the trading session begins.

Market Order - An order to buy orsell futures/options contracts of a specified delivery monthwhich is to be filled at the best possible price as soon aspossible.

Maturity - The time between thefirst notice day and the last trading day of a commodity futurescontract.

National Futures Association - (NFA)- A futures industry supported, self-regulatory organization.Responsibilities include enforcing ethical standards, customerprotection rules, evaluate futures professionals, audit thoseprofessionals for financial and compliance standards and provideconflict resolution for futures/options related disputes.

Nearby - The nearest deliverycontract month of a commodity futures market. Upon first noticeof delivery, referred to as the "spot month or deliverymonth."

Notice of Intention to Deliver - anotice that must be presented by the seller to the clearinghousefor the purpose of making delivery. The clearinghouse (exchange)assigns the notice to the oldest outstanding position held by abuyer in accordance with the contract specifications.

Offset - The sale of an equal numberof long futures/options contracts (the same delivery month) orbuying an equal number of short futures/options contracts (thesame delivery month). An example: a trader is long 1 July '97Soymeal contract and wants to be out of the market, he wouldoffset by selling 1 July '97 Soymeal contract. Once executed,that trader has no position.

Open Interest - The total number offutures contracts of a given commodity that have not yet beenoffset by opposite futures transactions nor fulfilled by deliveryof the commodity; the total number of open transactions. Eachopen transaction has a buyer and a seller, but for calculation ofopen interest, only one side of the contract is counted.

Opening Range - The range of pricesthat occurred at the start of trading.

Open Order - An order that remainsin effect until canceled by the customer or until thefutures/options contract expires.

Option - The right, but not theobligation, to buy or sell an underlying futures contract at aspecific price during a specified time period. (Can also mean theprice of cash grain or oilseed that is equal to the underlyingfutures price. Example: The cash price for soybeans in the firsthalf of July is 8.00 and at the same time, July futures are8.00.) See also "Call Option," "Put Option"and "Strike."

Original Margin - See "InitialMargin."

P & S statement - (purchase& sale) - A statement sent by a futures clearing merchant toa customer regarding their trading account when a transaction hasoccurred. Shows new positions, offset positions, profit and loss,commissions, etc.

Position - Commitment or interest inthe futures market. Example: a trader who has purchased a JulySoymeal contract holds a long position. A short position is tohave sold futures/call options or bought puts. Long positions arebuying futures/call options and selling puts. A position isdetermined by weighing the number of long positions against thenumber of short positions (including options).

Position limit - The maximum numberof futures contracts one can hold as determined by the commodityfutures trading commission and/or the exchange upon which thecontract is traded.

Premium - Generally, the excess ofcash commodity value over a futures contract or over another cashcommodity value or of one futures contract price over another.Can also mean option premium, which is the value of the option atthe time of its sale. The buyer pays the premium (which islimited risk) and the seller receives the premium (which hasunlimited risk.


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