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A
Accrued Interest: Interest earned between the most recent interest payment and the present
date but not yet paid to the lender.
Actuals: An
actual physical commodity someone is buying or selling,
e.g., soybeans, corn, gold, silver, Treasury bonds, etc.
Also referred to as actuals.
Add-on Method:
A method of paying interest where the interest is added
onto the principal at maturity or interest payment dates.
Adjusted Futures Price: The cash-price equivalent reflected in the current
futures price. This is calculated by taking the futures
price times the conversion factor for the particular financial
instrument (e.g., bond or note) being delivered.
Against Actuals:
A transaction generally used by two hedgers who want to
exchange futures for cash positions. Also referred to as
"against actuals" or "versus cash".
Arbitrage:
The simultaneous purchase and sale of similar commodities
in different markets to take advantage of price discrepancy.
Arbitration:
The procedure of settling disputes between members, or between
members and customers.
Assign: To
make an option seller perform his obligation to assume a
short futures position (as a seller of a call option) or
a long futures position (as a seller of a put option).
At-the-Money Option: An option with a strike price that is equal, or approximately equal,
to the current market price of the underlying futures contract.
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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.
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.
Butterfly Spread : The placing of two interdelivery spreads in opposite directions with
the center delivery month common to both spreads.
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.
Certificate of Deposit (CD) : A time deposit with a specific maturity evidenced by
a certificate.
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 underpriced.
Cheapest to Deliver : A method to determine which particular cash debt instrument is most
profitable to deliver against a futures contract.
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 Corporation : An independent corporation that settles all trades made at an exchange,
acting as a guarantor for all trades cleared by it, reconciles
all clearing member firm accounts each day to ensure that
all gains have been credited and all losses have been collected,
and sets and adjusts clearing member firm margins for changing
market conditions.
Clearing 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. See 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.
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 contractsÐacting
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 Pool Operator : An individual or organization that operates or solicits
funds for a commodity pool.
Commodity Pool :
An enterprise in which funds contributed by a number of
persons are combined for the purpose of trading futures
contracts or commodity options.
Commodity Trading Adviser : A person who, for compensation or profit, directly
or indirectly advises others as to the value or the advisability
of buying or selling futures contracts or commodity options.
Advising indirectly includes exercising trading authority
over a customer's account as well as providing recommendations
through written publications or other media.
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.
Concurrent Indicators : Market indicators showing the general direction of
the economy and confirming or denying the trend implied
by the leading indicators.
Consumer Price Index (CPI) : A major inflation measure computed by the U.S. Department
of Commerce. It measures the change in prices of a fixed
market basket of some 385 goods and services in the previous
month.
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.
Controlled Account : An arrangement by which the holder of the account gives written power
of attorney to another person, often his broker, to make
trading decisions. Also known as a discretionary or managed
account.
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.
Conversion Factor : A factor used to equate the price of T-bond and T-note futures contracts
with the various cash T-bonds and T-notes eligible for delivery.
This factor is based on the relationship of the cash-instrument
coupon to the required 8 percent deliverable grade of a
futures contract as well as taking into account the cash
instrument's maturity or call.
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.
Coupon : The
interest rate on a debt instrument expressed in terms of
a percent on an annualized basis that the issuer guarantees
to pay the holder until maturity.
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).
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.
Current Yield :
The ratio of the coupon to the current market price of the
debt instrument
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.
DAX® Futures (FDAX): An
instrument based on the Deutscher Aktienindex (DAX®).
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.
Discount Method :
A method of paying interest by issuing a security at less
than par and repaying par value at maturity. The difference
between the higher par value and the lower purchase price
is the interest.
Discount Rate :
The interest rate charged on loans by the Federal Reserve
Bank.
Discretionary Account : An arrangement
by which the holder of the account gives written power of
attorney to another person, often his broker, to make trading
decisions. Also known as a controlled or managed account.
Dow Jones STOXXSM 50 Futures (FSTX):
An instrument based on the Dow Jones STOXXSM 50 index (for
Dow Jones STOXXSM 50 Futures)
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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.
Equilibrium Price : The market price
at which the quantity supplied of a commodity equals the
quantity demanded.
EURIBOR Futures: The European
Inter-bank Offered Rate (EURIBOR) for one-month or three-month
euro time deposits.
Euro-BOBL Futures (FGBM):
A notional medium-term debt instrument issued by the German
Federal Government with a term of 4_ to 5_ years and a 6
percent coupon.
Euro-BUND Futures (FGBL):
A notional long-term debt instrument issued by the German
Federal Government with a term of 8_ to 10_ years and an
interest rate of 6 percent.
Euro-BUXL Futures (FGBX):
A notional long-term debt instrument issued by the German
Federal Government with a term of 20 to 30_ years and a
6 percent coupon.
Euro-SCHATZ Futures (FGBS):
A notional short-term debt instrument issued by the German
Federal Government or the Treuhandanstalt with a term of
1_ to 2_ years and an interest rate of 6 percent.
Eurodollars : Time deposits denominated
in U.S. dollars that are deposited in commercial banks outside
the U.S., and they have long served as a benchmark interest
rate for corporate funding.
European Terms :
A method of quoting exchange rates, which measures the amount
of foreign currency needed to buy one U.S. dollar, i.e.,
foreign currency unit per dollar. Reciprocal of European
Terms is another method of quoting exchange rates, which
measures the U.S. dollar value of one foreign currency unit,
i.e., U.S. dollars per foreign units.
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.
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.
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
Face Value :
The amount of money printed on the face of the certificate
of a security; the original dollar amount of indebtedness
incurred.
Federal Funds Rate : The rate of interest charged for the use of federal funds.
Federal Funds :
Member bank deposits at the Federal Reserve; these funds
are loaned by member banks to other member banks.
Federal Housing Administration (FHA) : A division of the U.S. Department of Housing and Urban
Development that insures residential mortgage loans and
sets construction standards.
Federal Reserve System : A central banking system in the United States, created
by the Federal Reserve Act in 1913, designed to assist the
nation in attaining its economic and financial goals. The
structure of the Federal Reserve System includes a Board
of Governors, the Federal Open Market Committee, and 12
Federal Reserve Banks.
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.
Financial Analysis Auditing Compliance Tracking System
(FACTS) : The National
Futures Association's computerized system of maintaining
financial records of its member firms and monitoring their
financial conditions.
Financial Instrument : There are two basic types: (1) a debt instrument, which is a loan with
an agreement to pay back funds with interest; (2) an equity
security, which is share or stock in a company.
First Notice Day : 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.
Foreign Exchange Market : An over-the-counter market where buyers and sellers
conduct foreign exchange business by telephone and other
means of communication. Also referred to as a forex market.
Forex Market :
An over-the-counter market where buyers and sellers conduct
foreign exchange business by telephone and other means of
communication. Also referred to as foreign exchange market.
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
GLOBEX¨ : A
global after-hours electronic trading system.
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 Domestic Product : The value of all final goods and services produced
by an economy over a particular time period, normally a
year.
Gross National Product : Gross Domestic Product plus the income accruing to
domestic residents as a result of investments abroad less
income earned in domestic markets accruing to foreigners
abroad.
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 commodityÐcorn,
soybeans, wheat, U.S. Treasury bonds, notes, bills etc.Ð
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 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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J
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K
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L
Lagging Indicators : Market indicators showing the general direction of the economy and confirming
or denying the trend implied by the leading indicators.
Also referred to as concurrent indicators.
Last Trading Day :Ê 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).
Leading Indicators : Market indicators that signal the state of the economy for the coming
months. Some of the leading indicators include: average
manufacturing workweek, initial claims for unemployment
insurance, orders for consumer goods and material, percentage
of companies reporting slower deliveries, change in manufacturers'
unfilled orders for durable goods, plant and equipment orders,
new building permits, index of consumer expectations, change
in material prices, prices of stocks, change in money supply.
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 declineÐfrom
the previous day's settlementÐpermitted 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.
Linkage : The
ability to buy (sell) contracts on one exchange (such as
the Chicago Mercantile Exchange ) and later sell (buy) them
on another exchange (such as the Singapore International
Monetary Exchange.)
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.
Liquidity Data Bank¨ : A computerized profile of CBOT market activity, used by technical traders
to analyze price trends and develop trading strategies.
There is a specialized display of daily volume data and
time distribution of prices for every commodity traded on
the Chicago Board of Trade.
Loan Program :
A federal program in which the government lends money at
preannounced 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 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 Information Data Inquiry System( MIDIS) : Historical Chicago Board of Trade price, volume, open
interest data and other market information accessible by
computers within the Chicago Board of Trade building.
Market Order :
An order to buy or sell a futures contract of a given delivery
month to be filled at the best possible price and as soon
as possible.
Market Profile¨ :
A Chicago Board of Trade information service that helps
technical traders analyze price trends. Market Profile consists
of the Time and Sales ticker and the Liquidity Data Bank¨.
Market Reporter :
A person employed by the exchange and located in or near
the trading pit who records prices as they occur during
trading.
Marking-to-Market : To debit or credit on a daily basis a margin account based on the close
of that day's trading session. In this way, buyers an sellers
are protected against the possibility of contract default.
Minimum Price Fluctuation : The smallest allowable increment of price movement
for a contract.
Money Supply :
The amount of money in the economy, consisting primarily
of currency in circulation plus deposits in banks: M-1ÐU.S.
money supply consisting of currency held by the public,
traveler's checks, checking account funds, NOW and super-
NOW accounts, automatic transfer service accounts, and balances
in credit unions. M-2ÐU.S. money supply consisting M-1 plus
savings and small time deposits (less than $100,000) at
depository institutions, overnight repurchase agreements
at commercial banks, and money market mutual fund accounts.
M-3ÐU.S. money supply consisting of M-2 plus large time
deposits ($100,000 or more) at depository institutions,
repurchase agreements with maturities longer than one day
at commercial banks, and institutional money market accounts.
Moving-Average Charts : A statistical price analysis method of recognizing
different price trends. A moving average is calculated by
adding the prices for a predetermined number of days and
then dividing by the number of days.
Municipal Bonds : Debt securities
issued by state and local governments, and special districts
and counties.
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