Glossary M-Z
Maintenance:
A set minimum margin (per outstanding futures contract) that a customer must maintain in his margin account.
Managed Account:
See Clearing Margin and Customer Margin.
Managed Futures:
Represents an industry comprised of professional money
See Clearing Margin and Customer Margin.
Managed Futures:
Represents an industry comprised of professional money mangers known as commodity trading advisors who manage client assets on a discretionary basis, using global futures markets as an investment medium.
Margin:
See Clearing Margin and Customer Margin.
Margin Call:
A call from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.
Market Information Data Inquiry System( MIDIS):
Historical Chicago Board of Trade price, volume, open interest data and other market information accessible by computers within the Chicago Board of Trade building.
Market Order:
See Clearing Margin and Customer Margin.
Managed Futures:
Represents an industry comprised of professional money mangers known as commodity trading advisors who manage client assets on a discretionary basis, using global futures markets as an investment medium.
Margin:
See Clearing Margin and Customer Margin.
Margin Call:
A call from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.
Market Information Data Inquiry System( MIDIS):
Historical Chicago Board of Trade price, volume, open interest data and other market information accessible by computers within the Chicago Board of Trade building.
Market Order:
An order to buy or sell a futures contract of a given delivery month to be filled at the best possible price and as soon as possible.
Market Price Reporting and Information Systems:
The Chicago Board of Trade's computerized price-reporting system.
Market Profile®:
A Chicago Board of Trade information service that helps technical traders analyze price trends. Market Profile consists of the Time and Sales ticker and the Liquidity Data Bank®.
Market Reporter:
A person employed by the exchange and located in or near the trading pit who records prices as they occur during trading.
Marking-to-Market:
To debit or credit on a daily basis a margin account based on the close of that day's trading session. In this way, buyers an sellers are protected against the possibility of contract default.
Minimum Price Fluctuation:
See Tick.
Money Supply:
The amount of money in the economy, consisting primarily of currency in circulation plus deposits in banks:
M-1–U.S. money supply consisting of currency held by the public, traveler's checks, checking account funds, NOW and super- NOW accounts, automatic transfer service accounts, and balances in credit unions. M-2–U.S. money supply consisting M-1 plus savings and small time deposits (less than $100,000) at depository institutions, overnight repurchase agreements at commercial banks, and money market mutual fund accounts. M-3–U.S. money supply consisting of M-2 plus large time deposits ($100,000 or more) at depository institutions, repurchase agreements with maturities longer than one day at commercial banks, and institutional money market accounts.
Moving-Average Charts:
A statistical price analysis method of recognizing different price trends. A moving average is calculated by adding the prices for a predetermined number of days and then dividing by the number of days.
Municipal Bonds:
Debt securities issued by state and local governments, and special districts and counties.
National Futures Association (NFA):
An industrywide, industry-supported, self-regulatory organization for futures and options markets. The primary responsibilities of the NFA are to enforce ethical standards and customer protection riles, screen futures professional for membership, audit and monitor professionals for financial and general compliance rules and provide for arbitration of futures-related disputes.
The futures contract month closest to expiration. Also referred to as spot month.
Negative Yield Curve:
See Yield Curve.
Notice Day:
According to Chicago Board of Trade rules, the second day of the three-day delivery process when the clearing corporation matches the buyer with the oldest reported long position to the delivering seller and notifies both parties. See First Notice Day.
Offer:
An expression indicating one's desire to sell a commodity at a given price; opposite of bid.
Taking a second futures or options position opposite to the initial or opening position. See Liquidate.
OPEC:
Organization of Petroleum Exporting Countries, emerged as the major petroleum pricing power in 1973, when the ownership of oil production in the Middle East transferred from the operating companies to the governments of the producing countries or to their national oil companies. Members are:
Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
Opening Range:
A range of prices at which buy an sell transactions took place during the opening of the market.
Open Interest:
The total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.
Open Market Operation:
The buying and selling of government securities–Treasury bills, notes, and bonds—by the Federal Reserve.
Open Outcry:
Method of public auction for making verbal bids and offers in the trading pits or rings of futures exchanges.
Option:
A contract that conveys the right, but not the obligation, to buy or sell a particular item at a certain price for a limited time. Only the seller of the option is obligated to perform.
The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Also referred to as the holder.
The price of an option–the sum of money that the option buyer pays and the option seller receives for the rights granted by the option.
The person who sells an option in return for a premium and is obligated to perform when the holder exercises his right under the option contract. Also referred to as the writer.
Option Spread:
The simultaneous purchase and sale of one or more options contracts, futures, and/or cash positions.
Option Writer:
See Option Seller.
The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as initial margin.
Out-of-the-Money Option:
An option with no intrinsic value, i.e., a call whose strike price is above the current futures price or a put whose strike price is below the current futures price.
Over-the-Counter Market:
A market where products such as stocks, foreign currencies, and other cash items are bought and sold by telephone and other means of communications.
Purchase and Sell Statement:
A Statement sent by a commission house to a customer when his futures or options on futures position ha changed, showing the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, and the net profit or loss on the transaction.
Par:
The face value of a security. For example, a bond selling at par is worth the same dollar amount it was issued for or at which it will be redeemed at maturity.
Payment-In-Kind Program:
A government program in which farmers who comply with a voluntary acreage-control program and set aside an additional percentage of acreage specified by the government receive certificates that can be redeemed for government-owned stocks of grain.
Performance Bond Margin:
The amount of money deposited by both buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit. See Customer Margin and Clearing Margin
Pit:
The area on the trading floor where futures and options on futures contracts are bought and sold. Pits are usually raised octagonal platforms with steps descending on the inside that permit buyers and sellers of contracts to see each other.
Point-and-Figure Charts:
Charts that show price changes of a minimum amount regardless of the time period involved.
Position:
A market commitment. A buyer of a futures contract is said to have a long position and, conversely, a seller of futures contracts is said to have a short position.
Position Day:
According to the Chicago Board of Trade rules, the first day in the process of making or taking delivery of the actual commodity on a futures contract. The clearing firm representing the seller notifies the Board of Trade Clearing Corporation that its short customers want to deliver on a futures contract.
The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange upon which the contract is traded. Also referred to as trading limit.
Position Trader:
An approach to trading in which the trader either buys or sells contracts and holds them for an extended period of time.
Premium:
(1) The additional payment allowed by exchange regulation for delivery of higher-than-required standards or grades of a commodity against a futures contract. (2) In speaking of price relationships between different delivery months of a given commodity, one is said to be "trading at a premium" over another when its price is greater than that of the other. (3) In financial instruments, the dollar amount by which a security trades above its principal value. See Option Premium.
Price Discovery:
The generation of information about "future" cash market prices through the futures markets.
The maximum advance or decline–from the previous day's settlement–permitted for a contract in one trading session by the rules of the exchange. See also Variable Limit.
Price Limit Order:
A customer order that specifies the price at which a trade can be executed.
Primary Dealer:
A designation given by the Federal Reserve System to commercial banks or broker/dealers who meet specific criteria. Among the criteria are capital requirements and meaningful participation in the Treasury auctions.
Primary Market:
Market of new issues of securities.
Prime Rate:
Interest rate charged by major banks to their most creditworthy customers.
Producer Price Index (PPI):
An index that shows the cost of resources needed to produce manufactured goods during the previous month.
Pulpit:
A raised structure adjacent to, or in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange, record price changes as they occur in the trading pit.
Purchasing Hedge or Long Hedge:
Buyer futures contracts to protect against a possible price increase of cash commodities that will e purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge. See Hedging.
Put Option:
An option that gives the option buyer the right but not the obligation to sell (go "short") the underlying futures contract at the strike price on or before the expiration date.
Range (Price):
The price span during a given trading session, week, month, year, etc.
One method of quoting exchange rates, which measured the U.S. dollar value of one foreign currency unit, i.e., U.S. dollars per foreign units. See European Terms.
Repurchase Agreements or (Repo):
An agreement between a seller and a buyer, usually in U.S. government securities, in which the seller agrees to buy back the security at a later date.
Reserve Requirements:
The minimum amount of cash and liquid assets as a percentage of demand deposits and time deposits that member banks of the Federal Reserve are required to maintain.
Resistance:
A level above which prices have had difficulty penetrating.
Resumption:
The reopening the following day of specific futures and options markets that also trade during the evening session at the Chicago Board of Trade.
The sale of soybean futures and the simultaneous purchase of soybean oil and meal futures. See Crush Spread.
Runners:
Messengers who rush orders received by phone clerks to brokers for execution in the pit.
Scalper:
A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
Secondary Market:
Market where previously issued securities are bought and sold.
Security:
Common or preferred stock; a bond of a corporation, government, or quasi- government body.
Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold. See Hedging.
Settle:
See Settlement Price.
The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm's net gains or losses, margin requirements, and the next day's price limits, based on each futures and options contract settlement price. If there is a closing range of prices, the settlement price is determined by averaging those prices. Also referred to as settle or closing price.
Short (noun):
One who has sold futures contracts or plans to purchase a cash commodity. (verb) Selling futures contracts or initiating a cash forward contract sale without offsetting a particular market position.
Short Hedge:
See Selling Hedge.
Simulation Analysis of Financial Exposure:
A sophisticated computer risk-analysis program that monitors the risk of clearing member and large-volume traders at the Chicago Board of Trade. It calculates the risk of change in market prices or volatility to a firm carrying open positions.
Speculator:
A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. Speculators assume market price risk and add liquidity and capital to the futures markets.
Usually refers to a cash market price for a physical commodity that is available for immediate delivery.
Spot Month:
Spread:
The price difference between two related markets or commodities.
Spreading:
The simultaneous buying and selling of two related markets in the expectation that a profit will be made when the position is offset. Examples include:
buying one futures contract and selling another futures contract of the same commodity but different delivery month; buying and selling the same delivery month of the same commodity on different futures exchanges; buying a given delivery month of one futures market and selling the same delivery month of a different, but related, futures market.
The relationship of cattle prices to feeding costs. It is measured by dividing the price of cattle ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to cattle prices, fewer units of corn equal the dollar value of 100 pounds of cattle. Conversely, when corn prices are low in relation to cattle prices, more units of corn are required to equal the value of 100 pounds of beef. See Feed Ratio.
Stock Index:
An indicator used to measure and report value changes in a selected group of stocks. How a particular stock index tracks the market depends on its composition–the sampling of stocks, the weighing of individual stocks, and the method of averaging used to establish an index.
Stock Market:
A market in which shares of stock are bought and sold.
Stop-Limit Order:
A variation of a stop order in which a trade must be executed at the exact price or better. If the order cannot be executed, it is held until the stated price or better is reached again.
Stop Order:
An order to buy or sell when the market reaches a specified point. A stop order to buy becomes a market order when the futures contract trades (or is bid) at or above the stop price. A stop order to sell becomes a market order when the futures contract trades (or is offered) at or below the stop price.
The price at which the futures contract underlying a call or put option can be purchased (if a call) or sold (if a put). Also referred to as exercise price.
Supply, Law of:
The relationship between product supply and its price.
Support:
The place on a chart where the buying of futures contracts is sufficient to halt a price decline.
Suspension:
The end of the evening session for specific futures and options markets traded at the Chicago Board of Trade.
Anticipating future price movement using historical prices, trading volume, open interest and other trading data to study price patterns.
The smallest allowable increment of price movement for a contract.
Time Limit Order:
A customer order that designates the time during which it can be executed.
Time and Sales Ticker:
Part of the Chicago Board of Trade Market Profile® system consisting of an on-line graphic service that transmits price and time information throughout the day.
Time-Stamped:
Part of the order-routing process in which the time of day is stamped on an order. An order is time-stamped when it is (1) received on the trading floor, and (2) completed.
The amount of money option buyer are willing to pay for an option in the anticipation that, over time, a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value. Also referred to as extrinsic value.
Trade Balance:
The difference between a nation's imports and exports of merchandise.
Trading Limit:
See Position Limit.
Treasury Bill:
See U.S. Treasury Bill.
Treasury Bond:
See U.S. Treasury Bond.
Treasury Note:
See
Underlying Futures Contract:
The specific futures contract that is bought or sold by exercising an option.
A short-term U.S. government debt instrument with an original maturity of one year or less. Bills are sold at a discount from par with the interest earned being the difference between the face value received at maturity and the price paid.
Government-debt security with a coupon and original maturity of more than 10 years. Interest is paid semiannually.
Government-debt security with a coupon and original maturity of one to 10 years.
According to the Chicago Board of Trade rules, an expanded allowable price range set during volatile markets.
Variation Margin:
During periods of great market volatility or in the case of high-risk accounts, additional margin deposited by a clearing member firm to an exchange.
Versus Cash:
Verticle Spread:
Buying and selling puts or calls of the same expiration month but different strike prices.
Volatility:
A measurement of the change in price over a given period. It is often expressed as a percentage and computed as the annualized standard deviation of the percentage change in daily price.
Volume:
The number of purchases or sales of a commodity futures contract made during a specific period of time, often the total transactions for one trading day.
Warehouse Receipt:
Document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.
Wire House:
See Futures Commission Merchant (FCM)
Writer:
See Option Seller.
Yield:
A measure of the annual return on an investment.
A chart in which the yield level is plot on the vertical axis and the term to maturity of debt instruments of similar creditworthiness is plotted n the horizontal axis. The yield curve is positive when long-term rates are higher than short-term rates However, yield curve is negative or inverted.
Yield to Maturity:
The rate of return an investor receives if a fixed-income security is held to maturity.Previous page: Glossary
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