A technical analysis tool representing the total of differences between advances and declines of security prices. The advance/decline line is considered the best indicator of market movement as a whole, stock indexes such as the DJIA only tell us the strength of 30 stocks where as the A/D line provides much more insight.
Failure to exercise or offset an option before its expiration.
A quote made which is given as an absolute rate rather than in reference to a funding base such as LIBOR, US treasury rates, etc. For example rather than T-Bill rate + 0.25% the bid is expressed as 5.75%, (If T-Bill = 5.50%).
The bookkeeping record of a customer’s transaction and credit (or debit) balances. This record usually includes confirmation of transactions, listing of holdings and/or open positions, cash and/or cash equivalents, beginning and ending liquidating value.
The amount of money or debt in an account.
Occurs when a certain amount of an account is reserved for a specified period. During the blockage, the blocked amount of the account cannot be touched by the account holder. An account can be totally or partially blocked.
Action of preventing any movement or action in an account.
The broker or clerk that is assigned to work with a customer and his/her account on behalf of a financial institution.
(1) A series of characters (alpha and/or numeric) used to identify a customer account or relationship. (2) The remitting financial institution’s account serviced by the receiving bank. (3) The identification assigned by a financial institution often called the account number.
Refers to all data that can be recorded in a database about an account, e.g., address, financial information, etc.
See Account identification.
The balance and current holdings of an account.
Action of reinstating an account to its normal condition, after a blocking or deactivation operation.
The status of an account often affects what and how many transactions can be performed on that account. For example an account that is under margined (insufficient funds) will not be allowed to add positions to the account.
The physical (cash) commodity or financial instrument rather than a futures or derivative contract for that commodity or financial instrument.
A technical indicator that quantifies the strength of the markets trend. 10-15 flat market, 16-25 trading range, 26-40 trending, 41+ hyper trend.
The total cost of a financial transaction including interest cost, periodic charges and all front-end compensation expressed as a per cent per annum figure.
Alpha refers to that part of a stock’s risk and return that is attributable to the stock individually, as apposed to the overall market. Alpha-capture is a spread trade between a stock future and a stock index future. You may see alpha-capture also referred to as “company-specific trading.”
American Stock Exchange (AMEX)
A stock exchange, a private, not-for-profit corporation, located in New York City. The third most-active market in the U.S. The exchange was founded in 1842. Also called Amex, and the curb exchange.
An option that may be exercised at any time prior to expiration.
A classic trading strategy to profit from different prices for the same security, commodity or financial instrument in different markets. Market forces will normally ensure that these arbitrage differences are short lived. The simultaneous purchase of one commodity against the sale of another in order to profit from distortions from usual price relationships.
Arbitrage Pricing Theory
A theory that if an investor earns a higher-than-normal return, then that is because he/she is accepting a higher-than-normal risk.
Dispute resolution technique in which both parties agree to submit their cases to a private individual or body for resolution. A forum for the fair and impartial settlement of disputes. NFA’s arbitration program provides a forum for resolving futures related disputes.
An indication by a trader or a dealer of a willingness to sell a security, a futures, or other financial instrument. The price at which an investor can buy. Syn. offer. See also bid; quotation.
The price that someone is willing to accept for a security, futures or other financial instrument. The ask portion of a quote is the lowest price anyone is willing to accept at that time.
The price at which sellers offer securities, futures or other financial instrument to buyers. Also called offer price.
Associated Person (AP)
An individual who solicits orders, customers, or customer funds on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor, or a Commodity Pool Operator and who is registered with the Commodity Futures Trading Commission (CFTC) via the National Futures Association (NFA).
At or better
(1) In a buy order for securities, futures or other financial instruments it is purchasing at the specified price or under it (2) For a sell order, it is selling at the specified price or above it. See limit order
At the market
See Market Order.
An option with a strike price equal to the current price of the instrument, such as a stock, upon which the option was granted.
An order that specifies it is to be executed at the opening of the market or of trading or else it is to be canceled. The order does not have to be executed at the opening price, but within the opening range of prices.
Departments in a financial institution in which the majority of their work is accounting, balancing, clearing, and bookkeeping, not directly in dealing with clients.
The difference between the current cash price and the futures price of the same commodity. The basis is determined by the costs of actually holding the commodity versus contracting to buy it for a later delivery (i.e. a futures contract). The basis is affected by other influences as well, such as unusual situations in supply or demand. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis. (See Carrying Charge)
A one one- hundredth of one percent (i.e., 0.01%), used to express interest rates and bond yield differentials. The smallest measure used in quoting yields on bonds and notes.
The risk of a movement between two different interest rate profiles, for example, prime lending rate and US Treasury rates.
A technical charting pattern that looks like a flag with a mast on the left side. Flags result from price fluctuations within a narrow range, they mark a consolidation before the previous move resumes.
Bear Market (bear/bearish)
A market in which prices are declining. A trader who believes prices will move lower is called a bear. A period of generally failing prices and pessimistic attitudes.
A measure of an investment’s volatility. The lower the beta, the less risky the investment.
A means of measuring the volatility of an individual market (security, future, financial instrument) in comparison with the market as a whole. A beta of 1 indicates that the individual market’s price will move with the overall market.
An indication of a trader of a willingness to buy a security. The price at which an investor can sell.
The difference between the bid price and the offer price.
Board of Trade
Any exchange or association of persons who are engaged in the business of buying or selling any commodity or receiving the same for sale on consignment. It usually means an exchange where commodity futures and/or options are traded. Sometimes referred to as Contract Market or Exchange.
A rapid and sharp price decline.
(1) The point at which gains equal losses. (2) The price a market must reach for an option buyer to avoid a loss if he exercises. For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid.
An individual or firm that charges a fee or commission for executing buy and sell orders placed by another individual or firm, floor broker in commodities futures trading, a person who actually executes orders on the trading floor of an exchange; an account executive (associated person) as the person who deals with customers and their orders in commission house offices.
A technical charting pattern that looks like a flag with a mast on right side. Flags result from price fluctuations within a narrow range, they mark a consolidation before the previous move resumes.
Bull Market (bull/bullish)
A market in which prices are rising. A trader who believes prices will move higher is called a bull. A news item is considered bullish if it is expected to bring on higher prices.
A purchase to offset, cover or close a short position.
Buy Limit order
An order to a broker to buy a specified quantity of a security at or below a specified price (called the limit price).
Buy on close
Buying securities, futures or other financial instruments at the end of a trading session at a price within the closing range.
Buy on opening
Buying securities, futures or other financial instruments at the beginning of a trading session at a price within the opening range.
Buy Stop Order
An order to buy a market that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price.
Buying Hedge (or Long Hedge)
Buying futures contracts (or other financial instruments) to protect against possible increased cost of inputs slated for futures uses. See Hedging.
See call option.
Publicly traded contract granting the owner the right, but not the obligation, to buy a specific amount of foreign currency or other financial instrument at a specified price at a stated future date. The buyer of a call option acquires the right but not the obligation to purchase a particular market at a stated price on or before a particular date.
Call option position delta’s
The sum of the delta amounts of call options bought and written for each currency.
A member of a commodity exchange, usually a clearinghouse member, through whom other brokers or customers, clear all or some trades.
Carrying Charge (Cost To Carry)
For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost necessary to buy the instrument. (See Basis)
The actual commodity or financial instrument as opposed to a futures contract based upon the commodity or instrument. See also Actuals.
The underlying commodity, security, currency or money market in which transactions for the purchase and sale of cash instruments which futures and derivative contracts relate to, are carried out.
The price of the actual underlying commodity that a futures contracts is based upon. In the case of SSF, the price of the underlying stock.
The Chicago Board Options Exchange. The CBOE has markets in Equities, Options and Over-the-counter securities.
The Chicago Board of Trade.
The Commodities Futures Trading Commission
The difference between the current price and the previous day’s close or settlement price.
Chicago Board of Trade (CBOT or CBT)
The oldest futures exchange in the United States; established in 1848. The exchange lists agricultural commodity futures such as corn, oats and soybeans, in addition to financial instruments, e.g., Treasury Bond, Treasury Notes.
Chicago Board Options Exchange
An exchange by the Chicago Board of Trade to trade stock options.
Excessive trading of the customer’s account by a broker, who has control over the trading decisions for the account, to make more commissions while disregarding the best interest of the customer. This violates the NASD, CFTC, and NFA rules.
The formal completion of a trade.
The procedure through which trades are checked for accuracy. Once the trades are validated, the clearinghouse or association becomes the buyer to each seller and the seller to each buyer.
A member of a clearinghouse or an association. All trades of a non-clearing member must be registered and eventually settled through a clearing member.
An organization with which securities may be deposited for safe- keeping and through which the purchase and sale transactions may be realized. The two main systems in the Eurobond market are Cedel and Euroclear.
See Settlement Price.
An agency connected with exchanges through which all transactions are made, offset, or fulfilled through delivery of the actual cash market and through which financial settlement is made; often, is a fully chartered separate corporation rather than a division of the exchange proper.
The period at the end of a trading session during which all transactions are considered to be made at the close.
The balance of entries posted to the account at the close of the statement period.
The price at which transactions are made just before the close on a given day. A number of transactions are often made at this time and they will be included over a range of prices. See also closing range.
A range of closely related prices at which transactions took place at the closing of the market; buy and sell orders at the closing might have been filled at any point within such a range.
An acronym for Chicago Mercantile Exchange. Also operates the International Monetary Market (IMM), the Index and Options Market (IOM) and the Growth and Emerging Markets (GEM)..
(1) A fee charged by a broker to a customer for performance of a specific duty, such as the buying or selling of futures contracts. Banks charge commissions for issuing letters of credit, accepting drafts drawn under letters of credit, entering foreign exchange transactions for their customers, custodial services, acting as fiscal agent, etc. Fees are paid by banks to others for various services and include fees to foreign exchange brokers for arranging foreign exchange transactions. A commission must be fair and reasonable, considering all the relevant factors of the transaction. (2) Sometimes used to refer to the Commodity Futures Trading Commission (CFTC).
A member of an exchange who executes orders for the sale or purchase of financial futures contracts.
Commission Merchant (Futures Commission Merchant)
One who makes a trade, either for another member of the exchange or for a non-member client, in his or her own name and becomes liable as principal to the other party to the transaction.
An entity of trade or commerce, services, or rights in which contracts for future delivery may be traded. Some of the contracts currently traded are wheat, corn, cotton, livestock, copper, gold, silver, oil, propane, plywood, currencies, Treasury Bills, Treasury Bonds, and Stock Indexes.
Commodity Exchange Act (CEA)
The federal act that provides for federal regulation of futures trading. CEA is administered by the Commodity Future Trading Commission.
Commodity Exchange of New York (CMX)
A division of the New York Mercantile Exchange.
Commodity Futures Trading Commission (CFTC)
The federal agency established by the Commodity Futures Trading Commission Act of 1974 to ensure the open and efficient operation of the futures markets. The five futures markets commissioners are appointed by the President (subject to Senate approval).
An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts and/or options on futures. Not the same as a joint account.
Commodity Pool Operator (CPO)
An individual or organization which operates or solicits funds for a commodity pool. Generally required to be registered with the Commodity Futures Trading Commission.
Commodity Trading Advisor (CTA)
Individuals or firms that, for a fee, issue analysis or reports concerning commodities, provide advice to others trading commodity futures, options, or leverage contracts.
The department within a brokerage firm that oversees the trading and market-making activities of the firm. It ensures that the employees and officers of the firm are abiding by the rules and regulations of the SEC, CFTC, NASD, and NFA exchanges and Designated Supervisory Regulatory Organizations (SROs).
A narrower range than prior periods.
A statement sent by a commission house to a customer when a transaction is made. The statement confirms the number of contracts bought or sold and the prices at which the contracts were bought or sold.
A technical analysis term. A pause in trading activity in which price moves sideways, setting the stage for the next move. Traders are said to evaluate their positions during periods of consolidation.
Consumer Price Index (CPI)
A measure of price changes in consumer goods and services used to identify periods of inflation or deflation. The index is based on a list of specific goods and services purchased in urban areas. It is released monthly by the Labor Department.
(1) An agreement between at least two parties to buy or sell on certain conditions, a certain product, as a result of which a legal status concerning rights and duties of the parties exists. (2) A term of reference describing a unit of trading for a commodity.
Standards or grades of commodities listed in the rules of the exchanges which must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the contract grade.
A board of trade designated by the Commodity Futures Trading Commission to trade futures or option contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded. See also Board of Trade and Exchange.
The month in which deliveries to be made in accordance with a futures contract.
The action of offsetting a futures securities or other financial instrument transaction with an equal and opposite transaction. Short covering – is a purchase to offset an earlier sale of an equal number of the same delivery month. Liquidation – is the sale to offset the obligation to take delivery.
The hedging of a cash instrument on a different, but related, futures or other derivatives market.
A procedure for margining related securities, options, and futures contracts jointly when different clearing houses clear each side of the position.
Commodity Trading Advisor.
Cup and Handle
A pattern on bar charts. The pattern can be as short as seven weeks and as long as 65 weeks. The cup is in the shape of a U. And the handle has a slight downward drift. The right hand side of the pattern has low trading volume. As the stock comes up to test the old highs. The stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for 4 days to 4 weeks, then it takes off.
Publicly traded contract involving the sale or purchase of a standardized amount of foreign currency at a price with delivery at a stated future date.
Publicly traded contract giving the owner the right, but not the obligation, to sell or buy a standardized amount of foreign currency at a price at a stated future date (see also call option; put option)
Current Delivery (Month)
The futures contracts which will come to maturity and become deliverable during the current month; also called a spot month.
The daily pattern (see abbreviations) indicating an intraday trend.
An order that if not executed expires automatically at the end of the trading session of the day it was entered.
The purchase and sale of a futures or an options contract in the same day, thus ending the day with no established position in the market or being flat.
Traders who take positions in the market and then liquidate them prior to the close of the trading day.
A put or call on a physical commodity, not originating on or subject to the rules of an exchange, written by a firm which deals in the underlying cash commodity.
A sum owed.
Accounting condition where the trading losses in a customer’s account exceed the amount of equity in the customer’s account.
All of the unexecuted orders in a floor broker’s possession.
The distant delivery months in which futures or options trading is taking place, as distinguished from the nearby futures delivery month.
The tender and receipt of an actual cash commodity or warehouse receipt or other negotiable instrument covering such market, in settlement of a futures contract or other forward financial transaction.
The date on which a financial instrument is to be/have been delivered/received.
A calendar month during which a futures or options contract matures and becomes deliverable.
Notice from the clearinghouse of a seller’s intention to deliver the physical commodity against a short futures position; it precedes and is distinct from the warehouse receipt or shipping certificate, which is the instrument of transfer of ownership.
Those locations designated by commodity exchanges at which stocks of a commodity represented by a futures contract may be delivered in fulfillment of the contract.
The official settlement price of the trading session during which the buyer of futures contracts receives, through the clearinghouse, a notice of the seller’s intention to deliver and the price at which the buyer must pay for the commodities represented by the futures contract.
In all foreign currency transactions there is a delivery risk between currency settlement hours outside the country involved, and the actual settlement hours in the country of the currency.
A measure of the relationship between an option price and its underlying futures contract or stock price. Delta measures how rapidly the value of an option moves in relation to the underlying value. It is the change in an option’s price divided by the change in the price of the underlying instrument. An option whose price changes by $1 for every $2 change in the price of the underlying instrument, has a delta of 0.5.
The partial offset of the exchange risk of a currency option by an opposite open currency spot position in the same foreign currency.
A type of investment whose value depends on the value of other investments, indices or assets. Futures contracts and stock options are common types of derivatives.
A complex investment whose value is derived from or linked to some underlying financial asset, such as a stock, bond, currency or mortgage. Derivatives may be listed on exchanges or traded privately over-the-counter. For example, derivatives may be futures, options, or mortgage-backed securities.
(1) A downward adjustment in price allowed for delivery of stocks of a commodity of lesser than deliverable grade against a futures contract. (2) Sometimes used to refer to the price difference between futures of different delivery months, as in the phrase, July at a discount to May, indicating that the price of the July future is lower than that of the May. (3) In general, the amount by which one market price is less than another.
An arrangement by which the holder of the account gives written power of attorney to another, often a broker, to make buying and selling decisions without notification to the holder; often referred to as a managed account or controlled account.
Measures the downward movement of a market. Many analysts believe an indication of a bullish market occurs when the DMI- crosses under the DMI+. This signals an opportunity to establish a long position. Conversely, an indication of a bearish market occurs when the DMI- crosses above the DM+-. This provides an opportunity to establish a short position and/or liquidate any existing long positions.
Measures the downward movement of a market. Many analysts believe an indication of a bullish market occurs when the DMI+ crosses under the DMI-. This signals an opportunity to establish a long position. Conversely, an indication of a bearish market occurs when the DMI+ crosses below the DMI-. This provides an opportunity to establish a short position and/or liquidate any existing long positions.
The computerized matching of buyers and sellers of financial instruments, Globex, Project A and Access are examples.
An option that may be exercised only on its expiration date.
An association of persons or entities engaged in the business of buying and selling futures and/or options usually involving an auction process. Also called a Board of Trade or Contract Market.
(1) The completion of an order for a transaction. (3) The carrying out of an instruction.
The date on which a trader wishes to exercise the option.
Exercising an option means the buyer elects to accept the underlying market at the option’s strike price.
The date on which the buyer of an option chooses to exercise the buyer’s right under the option contract with the seller of the option.
Exercise date and striking price
The last day on which the option can be exercised as well as the currency and price at which the market can be purchased or sold, on or before that date.
The price at which the buyer of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract. Also called strike price or strike.
Generally the last date on which an option may be exercised or a transaction can be made.
First Notice Day
First day on which notices of intention to deliver cash commodities against futures contracts can be presented by sellers and received by buyers through the exchange clearinghouse.
(1) The lowest rate a financial market is allowed to fall. (2) The trading floor of an exchange.
An individual who executes orders on the trading floor of an exchange for any other person or entity.
Members of an exchange who are personally present, on the trading floors of the exchanges, to make trades for themselves.
FOK (Fill or Kill)
FOK (Fill or Kill) When an order is given to a broker that must immediately be filled in its entirety or, if this is not possible, totally canceled.
A market for foreign exchange involving delivery of currency at some date in the future.
The difference between the spot rate and the forward rate for a specific foreign currency, measured in pips.
The difference between the higher forward and the lower spot price of a currency expressed as an annualized percentage.
An exchange rate for delivery on a date later than spot date.
The premium or discount of forward (i.e. future) foreign exchange swap contracts and the forward spot rates.
Trading, in which actual delivery and settlement is made at a future date. Forward trade occurs in the commodity, foreign exchange, stock, bond and futures markets.
Brokers who execute buy and sell orders, research investments, help investors develop and meet investment goals and give advice to investors. They charge commissions for their work.
An account carried by the Futures Commission Merchant or other financial institution in the actual name of the individual customer; it is the opposite of an omnibus account.
An approach to the analysis of markets which examines the underlying factors which will affect the supply and demand of the market, overall economy, industry conditions, etc. (See also Technical Analysis.)
A term used to designate all contracts covering the purchase and sale of financial instruments or physical commodities for future delivery on a commodity futures exchange.
Futures Commission Merchant (FCM)
An individual or organization which solicits or accepts orders to buy or sell futures contracts or commodity options and accepts money or other assets from customers in connection with such orders. The individual or organization must be registered with the Commodity Futures Trading commission.
A standardized binding agreement to buy or sell a specified quantity or grade of a commodity at a later date, i.e., during a specified month. Futures contracts are freely transferable and can be traded only by public auction on designated exchanges.
In technical analysis, a trading day during which the daily price range is completely above or below the previous day’s range
Used in the context of general equities. Opening price that is substantially higher or lower than the previous day’s closing price, usually because of some extraordinarily positive or negative news.
The Chicago Mercantile Exchange’s electronic trading system that trades virtually 24 hours a day.
GTC (Good until cancelled)
GTC (Good until cancelled) orders are generally held on file and considered to be active unless cancelled by you. Upon expiration of the contract, the GTC order will be automatically cancelled.
Head and shoulders
A technical analysis chart, pattern that has three peaks resembling a head and two shoulders. The market’s price moves up to its first peak (the left shoulder), drops back, then moves to a higher peak (the top of the head), drops again but recovers to another, lower peak (the right shoulder). A head and shoulders top typically forms after a substantial rise and indicates a market reversal. A head and shoulders bottom (an inverted head and shoulders) indicates a market advance.
The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Usually it involves opposite positions in the cash market and futures market at the same time. (See also hedging)
The proportion of underlying currencies, securities or options needed to hedge a written option.
A transaction strategy used by dealers and traders in foreign exchange, commodities and securities, as well as farmers, manufactures, and other producers, to protect against severe fluctuations in exchange rates and market prices. A current sale or purchase is offset by contracting to purchase or sell at a specified future date.
Daily range contained within the prior days range.
In the Money
An option having intrinsic value. A call is in the money if its strike price is below the current price of the underlying futures contract. A put is in the money if its strike price is above the current price of the underlying futures contract.
The minimum value on deposit in your account to establish a new futures or options position, or to add to an existing position. Initial margin amount levels differ by contract. Brokerage firms set the level of Initial Margin required, and it may change at any time at their discretion. Increases or decreases in Initial Margin levels reflect anticipated or actual changes in market volatility. Also called “Initial Performance Bond.” (See also Margin)
Two calculated support and resistance levels for the current day trading. The prices will only hit the Level 2 ranges under extreme market conditions.
The absolute value of the in the money amount; that is, the amount that would be realized if an in the money option were exercised.
Introducing Broker (IB)
A firm or individual that solicits and accepts commodity futures orders from customers but does not accept money, securities, or property from the customer. An IB must be registered with the Commodity Futures Trading Commission and must carry all of its accounts through an FCM on a fully disclosed basis.
Futures or forward market in which the nearer months are selling at premiums over the more distant months; it is, characteristically, a market in which supplies are currently in shortage.
IOC (Immediate or Cancel)
IOC (Immediate or Cancel). An order requiring that all or part of the order be executed immediately after it has been brought to the market. Any portions not executed immediately are automatically cancelled. This is used for large orders where filling quickly can be difficult.
An option activated only when the price of the option’s underlying instrument or market reaches a certain level above or below an agreed upon range.
An option that becomes worthless when the price of the option’s underlying instrument or market reaches a previously agreed upon point.
Long day. Watch for lows and/or support early in the session. The trading will often test the previous days low. If the price moves excessively below the lows, long trades should be scalps ONLY that are covered on the first rally. Successful tests of the low usually should be carried overnight. The market should close higher than the open and not make new lows in the afternoon.
Last Trading Day
Day on which trading ceases for the maturing (current) delivery month.
Long Day watch for lows and/or support early in the session. The trading will often test the previous days low. If the price moves excessively below the lows, long trades should be scalps ONLY that are covered on the first rally. Successful tests of the low usually should be carried overnight. The market should close higher than the open and not make new lows in the afternoon.
Leading economic indicators
A composite of 11 economic measurements that tend to change in the economy as a whole. Leading indicators are believed to predict changes in the economy. The components are: average work week, unemployment claims, orders for consumer goods, slower deliveries, plant and equipment orders; building permits, durable order backlog, materials prices, stock prices, M2 money supply and consumer expectations.
Essentially, it allows an investor to establish a position in the marketplace by depositing funds that are less than the value of the contract. The use of borrowed assets by a business to enhance the return to the owner’s equity.
Life of Contract
Period between the beginning of trading in a particular futures contract or other derivative and the expiration of trading in the delivery month.
A price that has advanced or declined the limit permitted during one trading session as fixed by the rules of a contract market.
An order in which the customer sets a limit on either price or time of execution, or both, as contrasted with a market order, which implies that the order should be filled at the most favorable price as soon as possible.
To own (buy) to a security, currency, futures contract, commodity, or derivative.
Buying futures contracts to protect against possible increased prices of commodities. See also Hedging.
An excess of assets (and/or forward purchase contracts) over liabilities (and/or forward sale contracts) in the same currency. A dealer’s position when the net of his or her purchases and sales leave him or her in a net-purchased position. See also short position and net position.
The minimum value that you must keep in your account in order to continue to hold a position. The Maintenance Margin is typically less than the Initial Margin, and also differs by contract. If your account falls below the Maintenance Margin requirement, you will receive a margin call. If you wish to continue to hold the position, you will be required to restore your account to the full Initial Margin level (not to the Maintenance Margin level). Also known as the Maintenance Performance Bond. (See also Margin)
(1) In the futures industry, it is an amount of money deposited by both buyers and sellers of futures contracts to ensure performance against the contract. It is not a down payment. (2) In the stock market, the amount of cash that must be put up in a purchase of securities. If the margin requirement is 50%, the buyer must put up 50% of the purchase price; the buyer must borrow the rest.
A brokerage account allowing customers to buy securities and/or other financial instruments with money borrowed from the brokerage.
A call from a brokerage firm to a customer to bring margin deposits back up to minimum levels required by exchange regulations; similarly, a request by the clearinghouse to a clearing member firm to make additional deposits to bring clearing margins back to minimum levels required by clearinghouse rules. A demand upon an investor to put up more collateral for securities bought on credit.
The simultaneous purchase and sale of the same security, futures, or other financial instrument in different markets to take advantage of a price disparity between the two markets.
Market If Touched Order
An order which becomes a market order if the specified price is reached.
Market On Close Order
A buy or sell order which is to be executed as a market order as close as possible to the end of the day.
An order to buy or sell futures contracts, stocks or other financial instrument which is to be filled at the best possible price and as soon as possible. A limit order, in contrast, may specify requirements for price or time of execution.
(1) A broker-dealer in which at least one of the principal officers is a member of the New York Stock Exchange, another exchange, a self-regulatory organization, or a clearing corporation. (2) A member of the National Futures Association.
Market Inversion Index. A very short term momentum indicator. This indicator is used to determine which side of the market to be on for the close and early session the following day. When the MII flips from, for instance, long to short on the market close, a trader should go short with the intent of covering the short either in globex or early in the next days session. This is a short term indicator for aggressive traders.
A mathematical procedure to smooth or eliminate the fluctuations in data. Moving averages emphasize the direction of a trend, confirm trend reversals, and smooth out price and volume fluctuations or noise that can confuse interpretation of the market.
Narrow-Based Index Futures
Also called industry-sector futures and exchange-traded baskets. Like a stock index future, except targeted to a specific group of stocks, such as the auto, airline or telecom industries.
National Futures Association (NFA)
The industry-wide self-regulatory organization of the futures industry.
The nearest delivery months of a futures or forward market.
Nearby Delivery (Month)
The futures contract delivery month closest to maturity.
(1) A financial institution has a position in foreign currency when its assets, including future contracts to purchase, and liabilities, including future contracts to sell, in that currency are not equal. An excess of assets over liabilities is called a net “long” position and liabilities in excess of assets result in a net “short” position. A long net position in a currency which is depreciating results in a loss, because with each day, that position (asset) is convertible into fewer units of local currency. A short position in a currency which is appreciating represents a loss, because with each day, satisfaction of that position (liability) costs more units of local currency. (2) The difference between the open long (buy) contracts and the open short (sell) contracts held by any one entity in any one futures contract month or in all months combined.
Price and volume fluctuations that can confuse interpretation of market direction. Used in the context of general equities. Stock market activity caused by program trades, dividend rolls, and other phenomena not reflective of general sentiment. Antithesis of real.
Declared price for a futures or forward market used in place of a closing price when no recent trading has taken place in that particular delivery month. Typically it is an average of the bid and asked prices.
Daily range is narrower than the preceding three days. Volatility has contracted.
Daily range is narrower that the preceding six days. Volatility has contracted.
Near-Term (Near-Term S or R)
New York Mercantile Exchange.
The overbought/oversold sentiment indicator as described by George Angell. This is a daily indicator of the overbought/oversold nature of the market used to determine if a trader should be a buyer or seller during the session.
Daily range outside the prior days range.
An indication of willingness to sell at a given price, also referred to as an ask, or asking price. The opposite of bid.
The liquidation of a purchase of futures, forward or other financial instrument through the sale of an equal number of the same delivery months, or the covering of a short sale of futures forward, or other financial instrument through the purchase of an equal number of the same delivery month. Either action transfers the obligation to make or take delivery of the actual financial instrument to someone else.
An account carried by one futures commission merchant or financial institution with another where the transactions of two or more persons are combined, rather than designated separately, and the identity of the individual accounts is not disclosed.
The period at the beginning of a trading session during which all transactions are considered made at the open.
The total number of futures contracts or market position of a given commodity which have not yet been offset or fulfilled by delivery of the actual; the total number of open transactions where each transaction has a buyer and a seller.
Method of public auction for making bids and offers in the trading pits or rings of commodity exchanges.
Open Trade Equity
The unrealized gain or loss on open positions.
The range of closely related prices at which transactions took place at the opening of the market; buying and selling orders at the opening might be filled at any point within such a range.
An agreement that represents the right to buy or sell a specified amount of an underlying security, a stock, bond, futures contract, etc. at a specified price within a specified time. The purchaser acquires a right, and the seller assumes an obligation. Stock options are traded on several exchanges, including the Chicago Board of Options Exchange, the American Stock Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange and the New York Stock Exchange; futures options are traded on all U.S. futures exchanges; over-the-counter options are traded with a wide variety of financial institutions.
The party who pays a premium to obtain the rights under an option.
The right, but not the obligation, to buy or sell a specific quantity of an underlying instrument on or before a specific date in the future. The seller of the option has the obligation to sell the underlying instrument (in the case of a put option) or buy it from the option buyer (in the case of a call option) at the exercise price if the option is exercised.
The period between the option start date and the expiry date of an option contract.
The money, securities, or property the buyer pays to the writer (grantor) for granting an option contract, thus conveying the rights of the option to the buyer.
The party who is obligated to perform if an option is exercised by the option buyer.
The handling of a customer order by a broker, including receiving the order verbally or in writing from the customer, transmitting it to the trading floor of the exchange where the transaction takes place, and returning confirmation (fill price) of the completed order to the customer.
Order to buy
An instruction sent by a client, or his authorized representative, to buy a given quantity of an identified financial instrument under specified conditions.
Order to sell
An instruction sent by a client, or his authorized representative, to sell a given quantity of an identified financial instrument under specified conditions.
See Limit Order, Market Order, Stop Order.
Original Margin (Initial Margin)
The term applied to the initial deposit of margin money required of clearing member firms by clearinghouse rules.
Out of the Money
A call option with a strike price higher, or a put option with a strike price lower than the current market value of the underlying asset. A put option is out of the money when the price of the underlying is above the option’s exercise price. An option contract is out-of-the-money when there is no benefit to be derived from exercising the option immediately.
Another term for Spread Trading but more specifically to securities (stocks in particular) rather than commodities. Commonly refers to buying one stock and selling another related stock against it. An example would be spreading Coke SSF against Pepsi SSF. See also Spread Trade.
A form of business organization in which two or more individuals or entities manage a business and are equally and personally liable for its debts and liabilities.
The daily and interday market pattern as described in Toby Crabel’s book, Day Trading with Short Term Price patterns and Opening Range Breakout.
Low is below the low of the preceding and following day.
Prior day high.
Prior day low.
Performance Bond (Margin)
Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole. (See also Initial Margin and Maintenance Margin).
The transfer of the underlying commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a physical commodity. Some futures contracts, such as stock index contracts, are cash settled.
A specially constructed arena on the trading floor of some exchanges where trading is conducted by open outcry. On other exchanges, the term ring designates the trading area.
Price level established as being significant by market’s failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level.
The minimum fluctuation in prices or options premiums. Also called ticks.
A market commitment. For example, a buyer of futures contracts is said to have a long position and, conversely, a seller of futures contracts is said to have a short position.
The maximum number of futures contracts that one can hold in certain regulated commodities, according to the provisions of the CFTC.
A trader who either buys or sells financial instruments and holds them for an extended period of time, as distinguished from the day trader, who will normally initiate and liquidate positions within a single trading session.
Maximum price advance or decline from the previous day settlement price permitted for a futures in one trading session by the rules of the exchange.
High is above the high of the preceding and following day.
An option that gives the option buyer the right, but not the obligation, to sell the underlying financial instrument at a particular price on or before a particular date. e.g., the right but not an obligation to sell foreign currency at a certain rate.
The selling of a put(s) at a lower strike price to pay for a put(s) at a higher strike.
The actual price or the bid or ask price of a security, commodity, futures, option, currency or other financial instrument at a particular time. Often called quote.
First Resistance Level
An upward movement of prices.
The difference between the high and low price during a given period, a single trading session, a week, a month, etc.
Registered Commodity Representative (RCR)
See Broker or Associated Person (AP).
Sizes of futures positions set by the exchange and/or by the CFTC at or above which commodity traders must make daily reports to the exchange and/or the CFTC as to the size of the position by commodity, by delivery month, and according to the purpose of trading, i.e., speculative or hedging.
The combination of an initiating purchase or sale of a futures contract or other financial instrument and offsetting sale or purchase of an equal number of futures contracts or other financial instruments, of the same specifications. Commissions and fees for transactions are charged on the round turn.
Sell day. Exit longs by selling into strength. A dow open signals a sell on the first rally.
First Support Level
Used in the context of general equities. Order to buy (sell) a security which specifies the total amount to be bought (sold) and the amount to be bought (sold) at successively decreasing (increasing) price intervals; often done in order to average the price.
Sell Day Exit longs by selling into strength. A down open signals a sell on the first rally
A special account used to hold and separate customer’s assets from those of the broker or firm.
To convey ownership of a security or other asset for money or value.
Sell Limit order
An order to a broker to sell a specified quantity of a security at or above a specified price (called the limit price).
Selling futures contracts to protect against possible decreased prices of the underlying cash market which will be sold in the future.
(1) The closing price, or a price within the range of closing prices, which is used as the official price in determining net gains or losses at the close of each trading session. (2) Payment of any amount of money under a contract.
One who has sold a cash commodity, a commodity futures contract or other financial instrument; a long, in contrast, is one who has bought a cash commodity or futures contract.
Trades that reverse, or close out, short-sale positions.
Selling futures to protect against possible decreasing prices of an underlying cash market. See also Hedging.
A situation in which a lack of supply and excess demand in a traded stock forces the price upward.
Single-Stock Futures (SSF)
SSF are an agreement between two parties that commits one party to buy a stock and one party to sell a stock at a given price and on a specified date. They are similar to existing futures contracts for gold, crude oil, bonds, and stock indices. Unlike actual stock, there is no ownership or voting rights contained in a SSF. (See also Universal Stock Futures)
The difference between estimated transaction costs and the amount actually paid.
One who attempts to anticipate price changes and make profits through the sale and/or purchase of financial instrument. A speculator with a forecast of advancing prices hopes to profit by buying futures contracts and then liquidating at a higher price. A speculator with a forecast of declining prices hopes to profit by selling then buying at a lower price in the future.
Price moves below PB and wide spread reversal occurs with (1) a close above the previous two closes, (2) the close is above PB, (3) the close is above the open and mid-range for the day and (4) the daily range is greater than prior days range.
Market for the immediate delivery of the product and immediate payment. May also refer to the nearest delivery month of a futures contract.
Spread (or Straddle)
(1) The purchase of one futures or forward delivery month against the sale of another futures or forward delivery month of the same commodity. The purchase of one delivery month of one futures or forward against the sale of the same delivery month of a different futures or forward. The purchase of one future or forward in one market against the sale of that future or forward in another market, to take advantage of and profit from the distortions from the normal price relationships that sometimes occur. (2) In a quotation, the difference between the bid and the ask prices of a market (3)The difference between two or more prices.
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.
Short sale day. Watch for highs first with resistance at prior days high. If the price moves excessively above the previous days high, short trades should be scalps only that are covered on the first pullback. On a flat to down open, short the first rally up to the previous days high. The market should not make new highs in the afternoon.
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 weighting of individual stocks, and the method of averaging used to establish an index.
Stock Index Futures
Futures contracts on a stock index, such as the Standard & Poor’s 500 or the Dow Jones Industrial Average. Stock index futures contracts are a derivative of the underlying index, and are cash-settled.
Stop Close Only
A stop order that can be executed, if possible, only during the closing period of the market.
Stop Limit Order
An order to buy or sell a certain quantity of a certain security at a specified price or better, but only after a specified price has been reached. Essentially a combination of a stop order and a limit order.
A risk management technique used to close out a losing position at a given point. A stop loss order is placed at the given point.
An order that becomes a market order when a particular price level is reached. A sell stop is placed below the market, a buy stop is placed above the market. Sometimes referred to as a stop loss order.
A specified price at which an investor can buy or sell an option’s underlying financial instrument. The exchange rate, interest rate, or market price that is guaranteed by an option transaction.
Abbreviation for Support Level
A price level at which a declining market has stopped falling. Once this level is reached, the market trades sideways for a period of time or rebounds. It is the opposite of a resistance price range.
Market risk due to price fluctuations which cannot be eliminated by diversification.
Trend day. A relatively wide range day with the open and close near the intraday extremes.
A minimum upward or downward movement in the price of a security, futures or other financial instrument.
The cumulative tick on the NYSE.
The tick on the Dow Jones Industrials Average (Maximum +30, Minimum 30).
Any amount by which an option premium exceeds the options intrinsic value.
An established set of price boundaries with a high and a low price within which a market will spend a marked period of time.
Used in the context of general equities. Short term trading index which shows a minute-by-minute correlation of the ratio of advances to declines to the ratio of advancing volume to declining volume. Depicts whether changes in the relationship of advances and declines are taking place faster or slower than changes in the general volume movement of the market, <1 indicates a bull market, = 1 neutral, and > 1 bear market. (See also A/D)
Slang for the quarterly expiration of stock-index futures, stock-index options and options on individual stocks. Trading associated with the expirations inflates stock market volume and can cause volatility in prices. Occurs on the third Friday of March, June, September and December.
Underlying Futures Contract
The specific futures contract that the option conveys the right to buy (in the case of a call) or sell (in the case of a put).
Universal Stock Futures
Same as Single-Stock Futures, but used to refer to those contracts that trade on the LIFFE. See also, Single-Stock Futures.
Price moves above PT and wide spread reversal occurs with (1) a close below previous two closes, (2) the close is below PT, (3) the close is below open and mid-range for the day and (4) the daily range is greater than the prior days range.
(1) A measure by which an exchange rate is expected to fluctuate over a given period. (2) A measure of commodities
tendency to move up and down in price based on its daily price history over a period of time.
Daily range is wider than the preceding three days.
Daily range is wider than the preceding six days.