Actuals - Physical products bought and sold in the spot market.

ADP - Acronym for "Alternate Delivery Procedure," a contract delivery method permitting the buyer and the seller, by agreement, to settle their delivery commitment independently of the exchange.

Allowances - The discounts (premiums) allowed the buyer for the grades or locations of a commodity lower (higher) than the par or basis grade or location specified in the futures. Also called differentials.

Approved Delivery Facility - Any bank, stockyard, mill, store, warehouse, plant, elevator or any other institution that is authorized by the exchange for delivery of exchange contracts.

Arbitrage - The simultaneous purchase or sale of a contract in different markets to profit from discrepancies in prices between those markets.

At The Market - An order to buy or sell at the best price obtainable at the time the order is received. See Market Order.

B

Backwardation - A condition when the front month is higher in price than the back months. Also known as an inverted market.

Balance of Payments - A record of value of all the economic transactions between residents, business firms, governments and any other institutions in a country and the rest of the world.

Basis - Difference between the spot price and the price of the futures.

Basis Grade - The commodity grade used as the contract standard.

Bear - A person who believes prices will move lower. See Bull.

Bear Market - A market in which prices are declining.

Bid - An offer to purchase at a specified price. See Offer.

Break - A rapid and sharp decline in price.

Broker - A firm or person who handles the execution of another party's trades.

Bull - A person who believes prices will rise. See Bear.

Bull Market - A market in which prices are rising.

Buy In - To cover or close out a short position. See Offset.

Buy-On-Close - To buy at the end of the trading session at a price within the closing range.

Buy-On-Open - To buy at the beginning of the trading session at a price within the opening range.

C

CFTC - Commodity Futures Trading Commission, established in 1975 to take over regulation of all U.S. futures and options trading.

C&F - "Cost and freight." Paid to move a commodity to a port of destination.

CIF - "Cost, insurance and freight." Paid to move a commodity to a port of destination and included in the price quoted.

Call - An option that gives the owner the right to buy a security or commodity at a predetermined price within a given time period. Also, an exchange-designated buying and selling period during which trading is conducted to establish a price range for a particular time.

Car - A loose, quantitative term sometimes used to describe a contract, e.g., "car of bellies." Derived from when quantities of the product specified on a contract often corresponded closely to the quantity carried in a railroad car.

Carrying Broker - A member of a futures exchange, usually a futures commission merchant, through whom another broker or customer elects to "clear" all or some of his trades.

Carrying Charges - Cost of storing a physical commodity over a period of time. Includes insurance and interest on the invested funds as well as other incidental costs.

Cash Commodity - The actual physical commodity, as distinguished from a futures commodity.

Cash Market - Market for immediate delivery and payment of commodities.

Central Bank - A financial institution that has official or semiofficial status in a federal government. Central banks are the instruments used by governments to expand, contract or stabilize the supply of money and credit. They hold reserves of other banks, act as fiscal agents for their governments and can issue paper money.

Certified Stocks - Quantities of commodities designed and certified for delivery by an exchange under its trading and testing regulations at delivery points specified and approved by the exchange.

(To) Clear - To be verified and guaranteed.

Clearinghouse - An adjunct to a futures exchange through which transactions executed on the floor of the exchange are settled. Also charged with assuring the proper conduct of delivery procedures and the adequate financing of the trading.

Clearing Member - A member of the clearinghouse or association. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

Clerk - A member's employee who has been registered to work on the trading floor as a phone person or runner.

(The) Close - A short period at the end of the trading session during which the closing price range is established. Sometimes used to refer to the closing price. See Open.

Closing Range (or Range) - The closing price (or price range) recorded during the period designated as the official close. See Settlement Price.

Commercial Stocks - Commodity in storage in public and private elevators or warehouses at important markets and afloat in vessels or barges in harbors and ports.

Commission - The fee charged by a broker to a customer when a transaction is made.

Commitment - Made when a trader assumes the obligation to accept or make delivery by entering into a futures contract. See Open Interest.

Commodity Exchange Act - Federal act passed in 1936 establishing the Commodity Exchange Authority and placing futures trading in a wide range of commodities under the regulation of the government.

Commodity Pool - An enterprise in which funds contributed by a number of persons are combined for purposes of trading futures or options for profits.

Commodity Trading Advisor (CTA) - A person who advises others as to the value of or advisability of buying or selling futures contracts or options or trades on the customer's behalf. A CTA trades other people's money. Must be registered with the CFTC.

Contango - A condition when the front month prices are lower than the back month prices. This is normal for most markets because back months include carrying costs (interest, storage, etc).

Contract - A unit of trading in futures, similar to "round lot" in securities markets. Also, actual bilateral agreement between buyer and seller in a futures transaction.

Contract Grade - That grade of commodity that has been approved by an exchange as deliverable in settlement of a futures contract. See Basis Grade, Par.

Contract Month - The month in which futures contracts may be satisfied by making or accepting delivery. Also called "delivery month."

(To) Cover - The purchase or sale of futures to offset a previously established position.

Crop Year - The period of time from one harvest or storage cycle to the next; varies with each commodity.

Cross-Rate - In foreign exchange, the price of one currency in terms of another currency in the market of a third country.

D

Day Order - Orders that are placed for execution, if possible, during only one trading session. If the order cannot be executed that day, it is automatically canceled.

Day Trading - Refers to establishing and liquidating the same position or positions within the same trading session.

Deferred Futures - Futures contracts that expire during the more distant months. See Nearbys.

Delivery - The tender and receipt of an actual commodity, warehouse receipt or other negotiable instrument covering such commodity in settlement of a futures contract.

Delivery Commitment, Buyer's - The written notice given by the buyer of his intention to take delivery against a long futures position on delivery day.

Delivery Commitment, Seller's - The written notice given by the seller of his intention to make delivery against the short futures position on delivery day.

Delivery Month - A specified month within which delivery may be made under the terms of the futures contract.

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.

Delivery Points - Those points designated by futures exchanges where the physical commodity covered by a futures contract may be delivered in fulfillment of such contract.

Delivery Price - The price fixed by the clearinghouse at which deliveries on futures contracts are invoiced, and also the price at which the futures contract is settled when deliveries are made. See Settlement Price.

Devaluation - A formal "official" decrease in the value of a country's currency, typically by that country.

Differentials - See Allowances.

Discretionary Account - An account over which any individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.

Discount - Less than par. If a future delivery is selling at a discount to the spot delivery, then it's selling for a lower price than the spot price. See Premium.

E

Equity - The residual dollar value of a futures trading account, assuming it's liquidated at the going market price.

Eurodollar - U.S. dollar deposits held abroad. Holders may include individuals, companies, banks and central banks.

Evening Up - Buying or selling to offset an existing market position. See Liquidation.

Exchange For Physicals (EFPs) - A technique in which a physical commodity position is traded for a futures position.

Exchange Rate - The value of one currency stated in terms of another currency.

Expiration - The date or month in which the contract expires, or is no longer traded.

Ex-Pit Transactions - Trades executed, for certain technical purposes, in a location other than the regular exchange trading pit.

F

First Notice Day - The first date, varying by commodities and exchanges, on which notices of intentions to deliver actual commodities against futures are authorized.

Floor Broker - A member who executes orders for the account of one or more clearing members.

Floor Trader - A member who executes trades for his own account, or for an account controlled by him. Also referred to as a "local."

Foreign Exchange - Foreign Currency. Often referred to as forex or interbank market.

Forward - In the future.

Forward Market - Informal (non-exchange) trading of contracts of future delivery. Contracts for forward delivery are "personalized," i.e., delivery time and amount are determined by the customer.

Futures - A term designating the standardized contracts covering the sale of commodities for future delivery on a futures exchange.

Futures Commission Merchant (FCM) - A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of commodities for future delivery on, or subject to, the rules of a futures exchange and who, in connection with such solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades or contracts. Must be licensed under the Commodity Exchange Act.

G

Give Up - An order that, at the request of the customer, is credited to a brokerage house that has not performed the execution service.

Grading Certificate - A paper setting forth the quality of a commodity as determined by authorized inspectors or graders.

G.T.C. - "Good-'til-Canceled." An order to a broker to buy or sell at a fixed price. The order holds until executed or canceled.

H

Hedging - A means of protection against extensive loss due to adverse price fluctuations. In the futures market, to purchase or sell for future delivery as a temporary substitute for a merchandising transaction to be made later.

I

Interest Arbitrage - The operation wherein foreign debt instruments are purchased to profit from the higher interest rate in the foreign country over the home country. The operation is profitable only when the forward rate on the foreign currency is selling at a discount less than the premium on the interest rate. See Interest Rate Parity.

Interest Rate Parity - The formal theory of interest rate parity holds that under normal conditions the forward premium or discount on a currency in terms of another is directly related to the interest differential between the two countries. For example, the forward rate discount (or premium) on Swiss francs in terms of dollars would equal the premium (or discount) of interest rates in Switzerland over (or under) those in the U.S. This theory holds only when there are unrestricted flows of international short-term capital. In reality, numerous economic and legal obstacles restrict the movement, so that actual parity is rare. See Interest Arbitrage.

Introducing Broker - A CTFC/NFA registered broker who solicits and services customer brokerage accounts but "introduces" (passes on) their orders to Futures Commission Merchants for execution, clearing and record keeping.

Inverted Market - A futures market in which the nearer months are selling at premiums to the more distant months. Also known as backwardation.

L

Last Trading Day - The final day under an exchange's rules during which trading may take place in a particular futures delivery month. Futures contracts outstanding at the end of the last trading day must be settled by delivery or, in the case of cash settlement, by an exchange of cash value differences.

Limit Order - An order given to a broker with restrictions upon its execution, such as price and time.

Liquidation - Same as offset. Any transaction that offsets or closes out a long or short position.

Liquidity - A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance.

Local - A floor broker who usually executes trades only for his own account.

Long - To be a buyer, or a person who has bought a futures contract to establish a market position and who has not yet closed this position with an offsetting sale. Opposite of Short.

Long the basis - The purchase of a cash commodity and the sale of a futures against unsold inventory to provide protection against a price decline in the cash market.

M

Maintenance Margin - A sum usually smaller than, but part of, the original margin (security deposit) that must be maintained on deposit at all times. If customer equity in any futures position drops to or under maintenance margin level, the broker must issue a call for the amount of money required to restore the customer's equity in the account back to the original margin level.

Margin - A cash amount of funds that a customer must deposit with the broker for each contract as a sign of his good faith in fulfilling the contract terms. It is not considered partial payment of purchase. See Security Deposit.

Margin Call - A demand for additional cash funds because of adverse price movement. See Maintenance Margin.

Marked To Market - Calculating the profit or loss on an open position using the most recent market price. Typically done by Futures Commission Merchants to calculate margin calls or account balances.

Market Order - An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Maximum Daily Price Fluctuation - The maximum amount the contract price can change up or down during one trading session, as fixed by exchange rules.

Minimum Price Fluctuations - Smallest increment of price movement possible in trading a given contract. See Point.

M.I.T - Market-if-Touched. A price order that automatically becomes a market order if the price is reached.