Futures

Trading Glossary (A-M) (N-Z)

Here are some common terms you'll encounter in the trading business.

Nearbys - The nearest delivery months of a futures market.
Nominal Price - Price quotation on futures for a period in which no actual trading took place.
Notice Day - A day on which notices of intent to deliver pertaining to a specified delivery month may be issued.

Offer - Indicates a willingness to sell a futures contract at a given price. It is the opposite of Bid.
Offset - See Evening Up, Liquidation.
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.
Open Contracts - Contracts that have been bought or sold and are still outstanding, not having been delivered upon or offset. See Open Interest.
Open Interest - Number of open contracts. Refers to unliquidated purchases or sales, never to their combined total.
(The) Open - The varying time period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the opening." The precise time varies with the amount of activity at the opening. See Close.
Opening Price - The price (or range) recorded during the period designated by the exchange at the official opening.
Option - Contracts with a seller and a buyer, giving the buyer the right, but not the obligation, to buy or sell the underlying instrument.
Original Margin - The margin needed to cover a new position.
Overbought - A market that has had a sharp decline. Rank-and-file traders (who were bullish and long earlier) have turned bearish.
Oversold - A market that has had a sharp upturn. Rank-and-file traders (who were bearish and short earlier) have turned bullish.
Over-The-Counter (OTC) - Market in which custom-tailored contracts are bought and sold between counterparties and not exchange traded.

P&S - "Purchase and Sale" statement. A statement provided by the broker to the customer showing the change in his net ledger balance after the offset of a previously established position.
Par - The standard delivery point or points, or the quality specifications of the commodity represented in the contract. Serves as a benchmark upon which to base discounts and premiums for varying quality.
Parity - Par Rate.
Point - The minimum unit that changes in futures prices may be expressed in; e.g., 1/10th of a cent per ounce for silver.
Position - A person's interest in the market, either long or short, in the form of open contracts.
Position Limit - The maximum number of contracts, as prescribed by an exchange or the CFTC, either net long or net short, in one futures or in all futures of one commodity combined that may be held or controlled by one person or firm in its own name. Does not apply to bona fide hedgers.
Premium - Above par. Used to quote one price in reference to another. In foreign exchange above spot. If the forward rate for Italian lira is at a premium to spot lira, it is selling above the spot price. See Discount.
Put - An option giving the right to sell a commodity or security at a predetermined price within a specified period of time.
Pyramiding - Using profits on a previously established position as margin for adding to that position.

Rally - An upward movement of prices following a decline.
Range - The high and low prices recorded during a specified time.
Recovery - Usually describes a price advance following a decline.
Resistance - A price point at which prices hit an invisible barrier. See Support.
Round turn - The purchase and sale of a contract. The long or short position of an individual is offset by an opposite transaction or by accepting or making delivery of the actual commodity.

Scalp - To trade for small gains. Involves establishing and liquidating a position quickly, within the same day, hour or minute.
Security Deposit - The amount of funds that must be deposited by a customer with his broker for each futures contract as a guarantee of fulfillment of the contract. It is not considered part payment of purchase. Used interchangeably with margin.
Security Deposit Call - A demand for additional cash funds because of adverse price movement. See Maintenance Margin.
Settlement Price - The daily price at which the clearinghouse clears all trades and settles all accounts between clearing members for each contract month. Settlement prices are used to determine both margin calls and invoice prices for deliveries.
Short - To be a seller or a person who has sold a futures contract to establish a market position and who has not yet closed out his position through an offsetting purchase or delivery. The opposite of being long.
Short Selling - Selling a contract with the idea of buying it back at a later date.
Short Squeeze - A situation in which a lack of supplies tends to force those who have sold to cover their positions by offsetting them in the futures market rather than by delivery.
Speculator - A person who attempts to anticipate price changes and through market activities makes profits.
Spot - Market of immediate delivery of the product and immediate payment. Also refers to the nearest delivery month on a futures contract.
Spread - 1) Difference in the prices of a currency between various future deliveries, or between the spot market and a future delivery. 2) To take simultaneous long and short positions, aimed at a profit via fluctuation of a differential in two prices. Also sometimes called a Straddle.
Stop-Loss Order - An order that immediately becomes a market order when the "stop" level is reached. Its purpose is to limit losses. It may be either by buying order or selling order.
Straddle - In futures trading, the same as the spread. Straddles (spreads) are between delivery months.
Support - A price point at which prices find an invisible base. See Resistance.
Swap - An interest rate swap is an agreement between two parties to exchange interest rate payments on a fixed (notional) amount of debt. In its standard (generic) form, one party to the swap agrees to pay a fixed interest rate in exchange for receiving a variable (floating) rate on the swap's notional amount. The reverse position is taken by the counterparty. Typically, the floating rate side of the swap is tied to the three- or six-month LIBOR (London Interbank Offer Rate). In foreign exchange, an exchange of bank balances.
Switching - Liquidating an existing position and simultaneously reinstating that position in another contract month of the same commodity or currency.

Technical Rally - A price movement attributed to conditions developing from within the futures market itself. These conditions include changes in open interest, volume and extent of recent price movement.
Tick - Refers to minimum change in price. See Point.
Treasury Bills - Government debt obligations. They are sold at something less than their value at maturity, the difference thereby being the yield. For example, a one-year U.S. Treasury Bill worth $10,000 at maturity may sell at $9,600. The $400 difference would be the yield, which is 4.17% (400/$9,600). A good barometer of interest rates.
Trend - The general direction of the market.
"To-Arrive" Contract - A transaction providing for subsequent delivery within a stipulated time limit of a specific grade of a commodity. The "to-arrive" sales contract was the forerunner of the present-day futures contract.

Volume - The number of purchases or sales of a commodity futures contract made during a specified period of time.