Commodity Futures Trading Terms 

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B

Balance of Payment: A summary of the international transactions of a country over a period of time including commodity and service transactions, and gold movements.

Bar Chart: A chart that graphs the high, low, and settlement prices for a specific trading session over a given period of time.

Basis: The difference between the current cash price and the futures price of the same commodity. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.

Bear Market: A period of declining market prices.

Bear Spread: In most commodities and financial instruments, the term refers to selling the nearby contract month, and buying the deferred contract, to profit from a change in the price relationship.

Bear: Someone who thinks market prices will decline.

Beginning Stocks: Grain and oilseed commodities not consumed during the previous marketing year. These are the stocks "carried over" into the current marketing year and added to the stocks produced during that crop year. See Carry-Over

Bid: An expression indicating a desire to buy a commodity at a given price, opposite of offer.

Broker: A company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.

Brokerage Fee: A fee charged by a broker for executing a transaction.

Brokerage House: An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as "commission house" or "wire house'.

Bull Market: A period of rising market prices.

Bull Spread: In most commodities and financial instruments, the term refers to buying the nearby month, and selling the deferred month, to profit from the change in the price relationship.

Bull: Someone who thinks market prices will rise.

Buying 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.

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C

Calendar Spread: The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same commodity on the same exchange. The purchase of either a call or put option and the simultaneous sale of the same type of option with typically the same strike price but with a different expiration month.

Call Option: An option that gives the buyer the right, but not the obligation, to purchase (go “long") the underlying futures contract at the strike price on or before the expiration date.

Canceling Order: An order that deletes a customer's previous order.

Carrying Charge: 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 of funds necessary to buy the instrument. Also referred to as cost of carry or carry.

Carryover: Grain and oilseed commodities not consumed during the marketing year and remaining in storage at year's end. These stocks are "carried over" into the next marketing year and added to the stocks produced during that crop year.

Cash Commodity: An actual physical commodity someone is buying or selling, e.g., soybeans, corn, gold, silver, Treasury bonds, etc. Also referred to as actuals.

Cash Contract: A sales agreement for either immediate or future delivery of the actual product.

Cash Market: A place where people buy and sell the actual commodities, i.e., grain elevator, bank, etc. Spot usually refers to a cash market price for a physical commodity that is available for immediate delivery. A forward contract is a cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

Cash Settlement: Transactions generally involving index-based futures contracts that are settled in cash based on the actual value of the index on the last trading day, in contrast to those that specify the delivery of a commodity or financial instrument.

Charting: The use of charts to analyze market behavior and anticipate future price movements. Those who use charting as a trading method plot such factors as high, low, and settlement prices; average price movements; volume; and open interest. Two basic price charts are bar charts and point-and-figure charts. Anticipating future price movement using historical prices, trading volume, open interest and other trading data to study price patterns.

Cheap: Colloquialism implying that a commodity is under priced.

Clear: The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing member.

Clearing Member: A member of an exchange clearinghouse. Memberships in clearing organizations are usually held by companies. Clearing members are responsible for the financial commitments of customers that clear through their firm.

Clearinghouse: An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data. Clearinghouses act as third parties to all futures and options contracts–acting as a buyer to every clearing member seller and a seller to every clearing member buyer.

Closing 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 price

Closing Range: A range of prices at which buy and sell transactions took place during the market close.

Commission Fee: A fee charged by a broker for executing a transaction. Also referred to as brokerage fee.

Commission House: An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as "wire house'.

Commodity Credit Corp.: A branch of the U.S. Department of Agriculture, established in 1933, that supervises the government's farm loan and subsidy programs.

Commodity Futures Trading Commission (CFTC): A federal regulatory agency established under the Commodity Futures Trading Commission Act, as amended in 1974, that oversees futures trading in the United States. The commission is comprised of five commissioners, one of whom is designated as chairman, all appointed by the President subject to Senate confirmation, and is independent of all cabinet departments.

Commodity: An article of commerce or a product that can be used for commerce. In a narrow sense, products traded on an authorized commodity exchange. The types of commodities include agricultural products, metals, petroleum, foreign currencies, and financial instruments and index, to name a few.

Contract Grades: The standard grades of commodities or instruments listed in the rules of the exchanges that 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 standard called for by the exchange.

Contract Month: A specific month in which delivery may take place under the terms of a futures contract.

Convergence: A term referring to cash and futures prices tending to come together (i.e., the basis approaches zero) as the futures contract nears expiration.

Cost of Carry (or 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 of funds necessary to buy the instrument.

Crop (Marketing) Year: The time span from harvest to harvest for agricultural commodities. The crop marketing year varies slightly with each ag commodity, but it tends to begin at harvest and end before the next year's harvest, e.g., the marketing year for soybeans begins September 1 and ends August 31. The futures contract month of November represents the first major new-crop marketing month, and the contract month of July represents the last major old-crop marketing month for soybeans.

Crop Reports: Reports compiled by the U.S. Department of Agriculture on various ag commodities that are released throughout the year. Information in the reports includes estimates on planted acreage, yield, and expected production, as well as comparison of production from previous years.

Cross-Hedging: Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures markets follow similar price trends (e.g., using soybean meal futures to hedge fish meal).

Crushing: The act of processing soybeans into soybean meal and oil.

Crush Spread: The purchase of soybean futures and the simultaneous sale of soybean oil and meal futures. The sale of soybean futures and the simultaneous purchase of soybean oil and meal futures.

Customer Margin: Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. FCMs are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value.  Also referred to as performance-bond margin. Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers.

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D

Daily Trading Limit: The maximum price range set by the exchange cash day for a contract.

Day Traders: Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.

Deferred (Delivery) Month: The more distant month(s) in which futures trading is taking place, as distinguished from the nearby (delivery) month.

Deliverable Grades: The standard grades of commodities or instruments listed in the rules of the exchanges that 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 standard called for by the exchange. Also referred to as contract grades.

Delivery Day: The third day in the delivery process at the Chicago Board of Trade, when the buyer's clearing firm presents the delivery notice with a certified check for the amount due at the office of the seller's clearing firm.

Delivery Month: A specific month in which delivery may take place under the terms of a futures contract. Also referred to as contract month.

Delivery Points: The locations and facilities designated by a futures exchange where stocks of a commodity may be delivered in fulfillment of a futures contract, under procedures established by the exchange.

Delivery: The transfer of the cash 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 cash commodity. Some futures contracts, such as stock index contracts, are cash settled.

Delta: A measure of how much an option premium changes, given a unit change in the underlying futures price. Delta often is interpreted as the probability that the option will be in-the-money by expiration.

Demand, Law of: The relationship between product demand and price.

Differentials: Price differences between classes, grades, and delivery locations of various stocks of the same commodity.

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E

Econometrics: The application of statistical and mathematical methods in the field of economics to test and quantify economic theories and the solutions to economic problems.

Ending Stocks: Grain and oilseed commodities not consumed during the current marketing year. These are the stocks "carried over" into the following marketing year and added to the stocks produced during that crop year. See Carry-Over

Equilibrium Price: The market price at which the quantity supplied of a commodity equals the quantity demanded.

Exchange for Physicals: A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as "against actuals" or "versus cash".

Exercise 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 strike price.

Exercise: The action taken by the holder of a call option if he wishes to purchase the underlying futures contract or by the holder of a put option if he wishes to sell the underlying futures contract.

Expanded Trading Hours: Additional trading hours of specific futures and options contracts at the Chicago Board of Trade that overlap with business hours in other time zones.

Expiration Date: Options on futures generally expire on a specific date during the month preceding the futures contract delivery month. For example, an option on a March futures contract expires in February but is referred to as a March option because its exercise would result in a March futures contract position.

Exports: The amount of grain or oilseed sold to foreign buyers.

Extrinsic Value: 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 time value.

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F

Feed Ratio: A ratio used to express the relationship of feeding costs to the dollar value of livestock. Hog/Corn Ratio The relationship of feeding costs to the dollar value of hogs. It is measured by dividing the price of hogs ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to pork prices, fewer units of corn equal the dollar value of 100 pounds of pork. Conversely, when corn prices are low in relation to pork prices, more units of corn are required to equal the value of 100 pounds of pork. Steer/Corn Ratio. 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.

Fill-or Kill: A customer order that is a price limit order that must be filled immediately or canceled.

First Notice Day: According to Chicago Board of Trade rules, the first day on which a notice of intent to deliver a commodity in fulfillment of a given month's futures contract can be made by the clearinghouse to a buyer. The clearinghouse also informs the sellers who they have been matched up with.

Floor Broker (FB): An individual who executes orders for the purchase or sale of any commodity futures or options contract on any contract market for any other person.

Floor Trader (FT): An individual who executes trades for the purchase or sale of any commodity futures or options contract on any contract market for such individual's own account.

Forward (Cash) Contract: A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

Full Carrying Charge Market: A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage

Fundamental Analysis: A method of anticipating future price movement using supply and demand information.

Futures Commission Merchant (FCM): An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as "commission house" or "wire house'.

Futures Contract: A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange trading floor.

Futures Exchange: A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.

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G

Gamma: A measurement of how fast delta changes, given a unit change in the underlying futures price.

Grain Terminal: Large grain elevator facility with the capacity to ship grain by rail and/or barge to domestic or foreign markets.

Gross Processing Margin: The difference between the cost of soybeans and the combined sales income of the processed soybean oil and meal.

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H

Hedger: An individual or company owning or planning to own a cash commodity–corn, soybeans, wheat, U.S. Treasury bonds, notes, bills etc.– and concerned that the cost of the commodity may change before either buying or selling it in the cash market. A hedger achieves protection against changing cash prices by purchasing (selling) futures contracts of the same or similar commodity and later offsetting that position by selling (purchasing) futures contracts of the same quantity and type as the initial transaction.

Hedging: The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes. Selling (Short) Hedge - 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. and Purchasing (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.

High: The highest price of the day, week, or month for a particular futures contract.

Hog/Corn Ratio: The relationship of feeding costs to the dollar value of hogs. It is measured by dividing the price of hogs ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to pork prices, fewer units of corn equal the dollar value of 100 pounds of pork. Conversely, when corn prices are low in relation to pork prices, more units of corn are required to equal the value of 100 pounds of pork. A ratio used to express the relationship of feeding costs to the dollar value of livestock.

Holder: 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 Option Buyer.

Horizontal Spread: The purchase of either a call or put option and the simultaneous sale of the same type of option with typically the same strike price but with a different expiration month. also referred to as a calendar spread.

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I

In-the-Money Option: An option having intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract. The amount by which an option is in-the-money.

Initial Margin: 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 original margin.

Intercommodity Spread: The purchase of a given delivery month of one futures market and the simultaneous sale of the same delivery month of a different, but related, futures market.

Interdelivery Spread: The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same commodity on the same exchange. Also referred to as an intramarket or calendar spread.

Intermarket Spread: The sale of a given delivery month of a futures contract on one exchange and the simultaneous purchase of the same delivery month and futures contract on another exchange.

Intrinsic Value: The amount by which an option is in-the-money. An option having intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract.

Introducing Broker: A person or organization that solicits or accepts orders to buy or sell futures contracts or commodity options but does not accept money or other assets from customers to support such orders.

Inverted Market: A futures market in which the relationship between two delivery months of the same commodity is abnormal.

Invisible Supply: Uncounted stocks of a commodity in the hands of wholesalers, manufacturers, and producers that cannot e identified accurately; stocks outside commercial channels but theoretically available to the market.

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K

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L

Last Trading Day: According to the Chicago Board of Trade rules, the final day when trading may occur in a given futures or option contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement (in some cases by EFPs).

LDP: Loan Deficiency Payments. The Federal Agriculture Improvement and Reform Act of 1996 (the 1996 FAIR Act) initiated a non-recourse marketing assistance loans and loan deficiency payments (LDP) program for 16 crops, including corn and soybeans. The purpose of this program is to provide producers a financial tool to help farmers market their crops throughout the year. The non-recourse loans allow farmers to store production and sell it when market conditions are favorable. The crop is employed as collateral for the loan. The loans are non-recourse in that the farmer has the option of repaying the loan by delivering the crop to the Commodity Credit Corporation at loan maturity.

Leverage: The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.

Limit Order: An order in which the customer sets a limit on the price and/or time of execution.

Limits: 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. 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. According to the Chicago Board of Trade rules, an expanded allowable price range set during volatile markets.

Liquid: A characteristic of a security or commodity market with enough units outstanding to allow large transactions without a substantial change in price. Institutional investors are inclined to seek out liquid investments so that their trading activity will not influence the market price.

Liquidate: Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract. Taking a second futures or options position opposite to the initial or opening position.

Loan Program: A federal program in which the government lends money at preannounce rates to farmers and allows them to use the crops they plant for the upcoming crop year as collateral. Default on these loans is the primary method by which the government acquires stock of agricultural commodities.

Loan Rate: The amount lent per unit of a commodity to farmers.

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.

Long: One who has bought futures contracts or owns a cash commodity.

Low: The lowest price of the day, week, or month for a particular futures contract.

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M

Maintenance: A set minimum margin (per outstanding futures contract) that a customer must maintain in his margin account.

Managed Account: Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers. Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. FCMs are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance-bond 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 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.

Margin: Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers. Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. FCMs are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance-bond margin.

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.

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: The smallest allowable increment of price movement for a contract.

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.

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N

National Futures Association (NFA): An industry wide, 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.

Nearby (Delivery) Month: The futures contract month closest to expiration. Also referred to as spot month.

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.

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O

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.

Offer: An expression indicating one's desire to sell a commodity at a given price; opposite of bid.

Offset: Taking a second futures or options position opposite to the initial or opening position. Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract.

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 Outcry: Method of public auction for making verbal bids and offers in the trading pits or rings of futures exchanges.

Opening Range: A range of prices at which buy an sell transactions took place during the opening of the market.

Option Buyer: 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.

Option Premium: 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.

Option Seller: 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: 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 Option Seller.

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.

Original Margin: 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.

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P

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. Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. FCMs are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers.

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 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.

Position Limit: 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.

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.

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. 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.

Price Discovery: The generation of information about "future" cash market prices through the futures markets.

Price Limit Order: A customer order that specifies the price at which a trade can be executed.

Price Limit: 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. According to the Chicago Board of Trade rules, an expanded allowable price range set during volatile markets.

Production: The amount of grain or oil seed produced during the crop year.  Derived by multiplying the harvested acres by the yield per acre.

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.

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.

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. The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes.

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.

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R

Range (Price): The price span during a given trading session, week, month, year, etc.

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.

Reverse Crush Spread: The sale of soybean futures and the simultaneous purchase of soybean oil and meal futures. The purchase of soybean futures and the simultaneous sale of soybean oil and meal futures.

Runners: Messengers who rush orders received by phone clerks to brokers for execution in the pit.

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S

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.

Selling Hedge or Short Hedge: 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. The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes.

Settle: 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 settlemeny price or closing price.

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: 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.

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.

Spot Month: The futures contract month closest to expiration. Also referred to as nearby delivery month.

Spot: Usually refers to a cash market price for a physical commodity that is available for immediate delivery.

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.

Steer/Corn Ratio: 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. A ratio used to express the relationship of feeding costs to the dollar value of livestock.

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.

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.

Strike 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.

Supply, Total: The total amount of supply of a grain or oilseed.  Consists of Beginning Stocks + Production + Imports.

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.

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T

Technical Analysis: Anticipating future price movement using historical prices, trading volume, open interest and other trading data to study price patterns.

Tick: 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 Value: 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.

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.

Trade Balance: The difference between a nation's imports and exports of merchandise.

Trading Limit: 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 position limit.

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U

Underlying Futures Contract: The specific futures contract that is bought or sold by exercising an option.

Use, Domestic: The amount of grain or oilseed consumed during a marketing year within the country of origin or production.

Use, Total: The amount of grain or oilseed consumed during a marketing year.  Total Use consists of all subcomponents of usage: feed, food, seed, sillage, crushing, exports, domestic use, and residual.

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V

Variable Limit: 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: A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as "against actuals" or "exchange for physicals."

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.

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W

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: An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as "commission house" or Futures Commission Merchant (FCM).

Writer: 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 option seller.

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X

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Y

Yield Curve: 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.

Yield: A measure of the annual return on an investment.

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Z

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