Glossary of terms

Actuals: The physical commodities on hand, ready for shipping, storage or manufacturers, as distinguished from futures contracts.

At The Market: Orders entered to buy or sell “at the market” are executed immediately by the floor broker at the best obtainable price.

Basis: The price difference between the actuals or spot commodity and the futures price.

Bearish and Bullish: When market conditions suggest lower prices, and prices are trending lower, a BEAR market exists.  Conversely, with higher prices forecast and prices moving upward, the situation is termed BULLISH.

Bid: An offer to buy a specific quantity of a commodity that is subject to immediate acceptance.

Break: A sharp, fast change in price.

Broker: A registered representative, either an account executive or floor broker, who is given the responsibility for the acceptance and/or execution of an order.

Call Option: An option giving the buyer the right to a long position in the market.  The purchaser anticipates prices going up.

Carrying Charge: The cost to store and insure a physical commodity over a period of time.  Also involves an interest charge and other incidental costs involved in ownership.

Cash Commodity: The actual physical commodity.

Cash Price:  The price actually being paid today for a commodity.

C.F.T.C. Commodity Futures Trading Commission.

Clearing: The process of matching Buy and Sell orders which have been executed during the day, and making any adjustments needed.

Clearing House: A department of the exchange, through which all trades on the exchange are cleared and adjusted.

Close: A period of time at the end of the trading sessions at which all orders are filled within the closing range.

The fee paid for buying and selling commodities in a futures or cash market.
Contract Month:  The month in which a futures contract may be satisfied by making or accepting delivery.

Day Order: An order that expires on the close of trading if not filled during the day.

The tender and receipt of the actual commodity or the warehouse receipt in settlement of a futures contract.

Delivery Notice: A notice of a clearing member’s intentions to deliver a stated quantity of a commodity in settlement of a futures contract.

Double Top or Double Bottom: Prices reaching their twelve-month high or twelve-month low two times.  The second top or bottom may be used as a new number one point or may be considered the three point in a 1-2-3 formation.

Exercise an Option: To enter the futures market at the strike price.

First Notice Day:
The first day on which notice of intention to deliver actual commodities against futures contracts can be made.

Floor Trader: An exchange member who fills orders for his own account by being personally present on the floor.  Usually called a “local”.

Futures: A term used to designate all contracts covering the sale of commodities for future delivery on a commodity exchange.

GTC Order: An order instruction to the broker to keep the order open until either executed or canceled.

Hedging: A protection against a move contrary to your position.  For example, an option purchased opposite a position in the futures market; farmers offset the risk of supply and demand with positions in the futures markets.

Internal Financing:
Using the profit from one contract to finance the margin on another.

Last Trading Day: This is the final day in which trading may occur for a particular delivery month.  After the last trading day, any remaining commitment must be settled by delivery.

Leverage: Investing a small amount of money to make a large amount of money.

Life Of The Contract: The contract prices from the first day it traded to the present.  In the case of a life of the contract high or low, the life of the contract may be greater than 12 months.

Limit: The maximum allowable price move for a given commodity during one day of trading.

Liquidity: A market which allows a quick and easy entrance or exit at a price close to the price order.  To liquidate or establish a position quickly, you need a large number of traders willing to buy and sell-indicated by open interest.

:  A long position is established by owning the actual commodity un-hedged or by purchasing a futures.

Margin: The money or collateral posted with a broker or the clearinghouse to guarantee the fulfillment of a futures contract.  Often referred to as a deposit, it is actually a specific amount of money frozen in your account as long as you are in the trade.  It is held aside as a bank to withdraw losses from in the event the market turns against you.

Margin Call: A demand by the brokerage firm or clearing house for additional funds, because of adverse price movement.  You will be required to keep an amount equal to the maintenance margins on your open positions.  If you are unable to do so, your position will be liquidated.

Nearbys: The nearest active trading month of a commodity futures market.

Offer: An indication of a willingness to sell at a certain price as opposed to a “bid”.

Open: A brief period of time, at the start of trading, at which all orders are considered made “at the opening.”

Open Interest: The total of all open futures contacts of a given commodity.  For every buyer of a futures contract, there is a seller.  Open interest of 1,000 means 1,000 longs and 1,000 shorts being traded in that market on that date.

Open Order: An order that remains in effect until it is filled or until you cancel it.

Pit: The area on the trading floor where trading in futures contracts is conducted.  Also called the “ring.”

P and S: A purchase and sales statement sent by a broker to his client showing both the purchase and sale of a contract that has been closed out.

Point Value: A point is the minimum basic price unit of a commodity established by the exchange.  It is based on the futures contract size.

Position: An interest in the market in the form of an open commitment either long or short.

Premium: The price or value of an option.
Put Option:  An option giving the buyer the right to a short position in the market.  The purchaser anticipates prices going down.

Pyramiding: Using accrued paper profits to margin additional trades.

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

Regulated Commodities: Those commodities over which the commodity futures trading commission has regulatory supervision for the purpose of seeing that commodity trading is conducted in the public’s interest.

Settlement Price: The price at which the clearinghouse clears all transactions at the close of the day.

Short Selling: This is selling a futures contract with the idea of purchasing it at a lower price at a later date.  The speculator expects the market to decline.  For example:  The speculator sells a February pork belly contract at 54 in October, and then purchases it at 51 in December.  Until the time in December that he purchases this contract, this market position was know as a short position.

Spot Price: The price quoted for an actual commodity (same as cash price).

Spread or Straddle: The simultaneous long or short position in the same or related commodities.

Stop-Loss: A price order to exit a market at a specified price.  A stop-loss order will always be an order to do the opposite of an open position.

Strike Price: When purchasing an option it is the price you are agreeing to buy or sell the commodity for if you so choose.

Volume: The total number of combined trades for all delivery months of any commodity.