CFTC P-105 (Revised 01-97)

**THE CFTC GLOSSARY:**

**A LAYMAN'S GUIDE**

**TO THE LANGUAGE OF THE**

**FUTURES INDUSTRY**

      Because the definitions of many words and phrases used throughout the      futures industry are not readily available in standard references, the      CFTC's Office of Public Affairs has compiled this glossary to assist      the layman in understanding the specialized words that are used in the      industry. This publication is not inclusive nor are general definitions      intended to state or suggest the views of the Commission concerning the      legal significance or meaning of any word or term.

*Commodity Futures Trading Commission*

*January 31, 1997*

**CFTC GLOSSARY**

**Abandon:** The act of an option holder in electing not to exercise      or offset an option.

**Accommodation Trading:** Non-competitive trading entered into by a      trader, usually to assist another with illegal trades.

**Actuals:** The physical or cash commodity, as distinguished from a      commodity futures contract. *Also see **Cash** and **Spot      Commodity***.

**Aggregation:** The principle under which all futures positions owned      or controlled by one trader (or group of traders acting in concert) are      combined to determine reporting status and compliance with speculative      limits.

**Allowances:** The discounts (premiums) allowed for grades or      locations of a commodity lower (higher) than the par (or basis) grade or      location specified in the futures contract. *See **Differentials.***

**Approved Delivery Facility:** Any bank, stockyard, mill, storehouse,      plant, elevator or other depository that is authorized by an exchange for      the delivery of commodities tendered on futures contracts.

**Arbitrage:** Simultaneous purchase of cash commodities or futures in      one market against the sale of cash commodities or futures in the same or      a different market to profit from a discrepancy in prices. Also includes      some aspects of hedging. *See **Spread, Switch.***

**Asian Option:** An option whose payoff depends on the average price      of the underlying asset during some portion of the life of the      option.

**Assignable Contract:** One which allows the holder to convey his      rights to a third party. Exchange-traded contracts are not      assignable.

**Associated Person:** A person associated with any futures commission      merchant, introducing broker, commodity trading advisor, commodity pool      operator, or leverage transaction merchant as a partner, officer,      employee, consultant, or agent. Also, any person occupying a similar      status or performing similar functions, in any capacity that involves:      (a) the solicitation or acceptance of customers' orders,      discretionary accounts, or participation in a commodity pool (other than      in a clerical capacity); or (b) the supervision of any person or persons      so engaged.

**At-the-Market:** An order to buy or sell a futures contract at      whatever price is obtainable when the order reaches the trading floor.      *Also called a **Market Order.***

**At-the-Money:** When an option's exercise price is the same as      the current trading price of the underlying commodity, the option is *at-the-money.*

**Audit Trail:** The record of trading information identifying, for      example, the brokers participating in each transaction, the firms      clearing the trade, the terms and time of the trade, and, ultimately, and      when applicable, the customers involved.

**Back Months:** Those futures delivery months with expiration or      delivery dates furthest into the future; futures delivery months other      than the spot or nearby delivery month.

**Backpricing:** Fixing the price of a commodity for which the      commitment to purchase has been made in advance. The buyer can fix the      price relative to any monthly or periodic delivery using the futures      markets.

**Backwardation:** Market situation in which futures prices are      progressively lower in the distant delivery months. For instance, if the      gold quotation for February is $160.00 per ounce and that for June is      $155.00 per ounce, the backwardation for four months against January is      $5.00 per ounce. (*Backwardation* is the opposite of *contango)*. *See **Inverted Market.***

**Banker's Acceptance:** A draft or bill of exchange accepted by a      bank where the accepting institution guarantees payment. Used extensively      in foreign trade transactions.

**Basis:** The difference between the spot or cash price of a      commodity and the price of the nearest futures contract for the same or a      related commodity. Basis is usually computed in relation to the futures      contract next to expire and may reflect different time periods, product      forms, qualities, or locations.

**Basis Grade:** The grade of a commodity used as the standard or par      grade of a futures contract.

**Basis Point:** The measurement of a change in the yield of a debt      security. One basis point equals 1/100 of one percent.

**Basis Quote:** Offer or sale of a cash commodity in terms of the      difference above or below a futures price (e.g., 10 cents over December      corn).

**Basis Risk:** The risk associated with an unexpected widening or      narrowing of basis between the time a hedge position is established and      the time that it is lifted.

**Bear:** One who expects a decline in prices. The opposite of a      "bull." A news item is considered bearish if it is expected to      result in lower prices.

**Bear Market:** A market in which prices are declining.

**Bear Spread:** The simultaneous purchase and sale of two futures      contracts in the same or related commodities with the intention of      profiting from a decline in prices but at the same time limiting the      potential loss if this expectation does not materialize. In agricultural      products, this is accomplished by selling a nearby delivery and buying a      deferred delivery.

**Bear Vertical Spread:** A strategy employed when an investor expects      a decline in a commodity price but at the same time seeks to limit the      potential loss if this expectation is not realized. This spread requires      the simultaneous purchase and sale of options of the same class and      expiration date but different strike prices. For example, if call options      are spread, the purchased option must have a higher exercise price than      option that is sold.

**Beta (Beta Coefficient):** A measure of the variability of rate of      return or value of a stock or portfolio compared to that of the overall      market.

**Bid:** An offer to buy a specific quantity of a commodity at a      stated price.

**Blackboard Trading:** The practice of selling commodities from a      blackboard on a wall of a commodity exchange.

**Black-Scholes Model:** An option pricing formula initially developed      by F. Black and M. Scholes for securities options and later refined by      Black for options on futures.

**Board Broker System:** A system of trading in which an individual      member of an exchange (or a nominee of the member) is designated as a      Board Broker for a particular commodity with the responsibility of      executing orders left with him by other members on the floor, providing      price quotations, and maintaining orderliness in the trading crowd. A      Board Broker may not trade for his own account or the account of an      affiliated organization. *Also See **Free Crowd Systems** and **Specialist System.***

**Board Order:***See **Market-if-Touched Order.***

**Board of Trade:** Any exchange or association, whether incorporated      or unincorporated, of persons who are engaged in the business of buying      or selling any commodity or receiving the same for sale on      consignment.

**Boiler Room:** An enterprise which often is operated out of      inexpensive, low-rent quarters (hence the term "boiler room")      that uses high pressure sales tactics (generally over the telephone) and      possibly false or misleading information to solicit generally      unsophisticated investors.

**Booking the Basis:** A forward pricing sales arrangement in which      the cash price is determined either by the buyer or seller within a      specified time. At that time, the previously-agreed basis is applied to      the then-current futures quotation.

**Book Transfer:** A series of accounting or bookkeeping entries used      to settle a series of cash market transactions.

**Box Transaction:** An option position in which the holder      establishes a long call and a short put at one strike price and a short      call and a long put at another strike price, all of which are in the same      contract month in the same commodity.

**Break:** A rapid and sharp price decline.

**Broker:** A person paid a fee or commission for executing buy or      sell orders for a customer. In commodity futures trading, the term may      refer to: (1) *Floor Broker--*a person who actually executes orders      on the trading floor of an exchange; (2) *Account Executive, Associated      Person, registered Commodity Representative or Customer's      Man--*the person who deals with customers in the offices of futures      commission merchants; or (3) the *Futures Commission      Merchant.*

**Broker Association:** Two or more exchange members who (1) share      responsibility for executing customer orders; (2) have access to each      other's unfilled customer orders as a result of common employment or      other types of relationships; or (3) share profits or losses associated      with their brokerage or trading activity.

**Bucketing:** Directly or indirectly taking the opposite side of a      customer's order into a broker's own account or into an account      in which a broker has an interest, without open and competitive execution      of the order on an exchange.

**Bucket Shop:** A brokerage enterprise which "books" (i.e.,      takes the opposite side of) a customer's order without actually      having it executed on an exchange.

**Bulge:** A rapid advance in prices.

**Bull:** One who expects a rise in prices. The opposite of      "bear." A news item is considered bullish if it portends higher      prices.

**Bullion:** Bars or ingots of precious metals, usually cast in      standardized sizes.

**Bull Market:** A market in which prices are rising.

**Bull Spread:** The simultaneous purchase and sale of two futures      contracts in the same or related commodities with the intention of      profiting from a rise in prices but at the same time limiting the      potential loss if this expectation is wrong. In agricultural commodities,      this is accomplished by buying the nearby delivery and selling the      deferred.

**Bull Vertical Spread:** A strategy used when an investor expects      that the price of a commodity will go up but at the same time seeks to      limit the potential loss should this judgment be in error. This strategy      involves the simultaneous purchase and sale of options of the same class      and expiration date but different strike prices. For example, if call      options are spread, the purchased option must have a lower exercise or      strike price than the sold option.

**Buoyant:** A market in which prices have a tendency to rise easily      with a considerable show of strength.

**Butterfly Spread:** A three-legged spread in futures or options. In      the option spread, the options have the same expiration date but differ      in strike prices. For example, a butterfly spread in soybean call options      might consist of two short calls at a $6.00 strike price, one long call      at a $6.50 strike price, and one long call at a $5.50 strike price.

**Buyer:** A market participant who takes a long futures position or      buys an option. An option buyer is also called a ***taker,      holder,*** or ***owner.***

**Buyer's Call:***See **Call.***

**Buyer's Market:** A condition of the market in which there is an      abundance of goods available and hence buyers can afford to be selective      and may be able to buy at less than the price that previously prevailed.      *See **Seller's Market.***

**Buying Hedge (or Long Hedge):** Hedging transaction in which futures      contracts are bought to protect against possible increases in the cost of      commodities. *See**Hedging.***

**Buy (or Sell) On Close:** To buy (or sell) at the end of the trading      session within the closing price range.

**Buy (or Sell) On Opening:** To buy (or sell) at the beginning of a      trading session within the open price range.

**C & F:** "Cost and Freight" paid to a point of      destination and included in the price quoted. *Same as **C.A.F.***

**Call:** (1) A period at the opening and the close of some futures      markets in which the price for each futures contract is established by      auction; (2) *Buyer's Call* generally applies to cotton, also      called "call sale." A purchase of a specified quantity of a      specific grade of a commodity at a fixed number of points above or below      a specified delivery month futures price with the buyer allowed a period      of time to fix the price either by purchasing a future for the account of      the seller or telling the seller when he wishes to fix the price; (3) *Seller's Call*, also called "call purchase," is the same      as the buyer's call except that the seller has the right to determine      the time to fix the price; (4) option contract giving the buyer the right      but not the obligation to purchase the commodity or to enter into a long      futures position; and (5) the requirement that a financial instrument be      returned to the issuer prior to maturity, with principal and accrued      interest paid off upon return.

**Call Cotton:** Cotton bought or sold on call. *See **Call.***

**Called:** Another term for "exercised" when the option is      a call. The writer of a call must deliver the indicated underlying      commodity when the option is exercised or called.

**Call Option:** A contract that entitles the buyer/taker to buy a      fixed quantity of commodity at a stipulated basis or striking price at      any time up to the expiration of the option. The buyer pays a premium to      the seller/grantor for this contract. A call option is bought with the      expectation of a rise in prices. *See **Put Option.***

**Call Rule:** An exchange regulation under which an official bid      price for a cash commodity is competitively established at the close of      each day's trading. It holds until the next opening of the      exchange.

**Capping:** Effecting commodity or security transactions shortly      prior to an option's expiration date depressing or preventing a rise      in the price of the commodity or security so that previously written call      options will expire worthless and the premium the writer received will be      protected.

**Carrying Broker:** A member of a commodity exchange, usually a      futures commission merchant, through whom another broker or customer      elects to clear all or part of its trades.

**Carrying Charges:** Cost of storing a physical commodity or holding      a financial instrument over a period of time. Includes insurance,      storage, and interest on the invested funds as well as other incidental      costs. It is a carrying charge market when there are higher futures      prices for each successive contract maturity. If the carrying charge is      adequate to reimburse the holder, it is called a "full charge."      *Also see **Negative Carry, Positive Carry****and****Contango.***

**Cash Commodity:** The physical or actual commodity as distinguished      from the futures contract. *Sometimes called **Spot Commodity** or      **Actuals***.

**Cash Forward Sale:***See **Forward Contracting.***

**Cash Market:** The market for the cash commodity (as contrasted to a      futures contract), taking the form of: (1) an organized, self-regulated      central market (e.g., a commodity exchange); (2) a decentralized      over-the-counter market; or (3) a local organization, such as a grain      elevator or meat processor, which provides a market for a small      region.

**Cash Price:** The price in the marketplace for actual cash or spot      commodities to be delivered via customary market channels.

**Cash Settlement:** A method of settling certain futures or option      contracts whereby the seller (or *short)* pays the buyer (or *long)* the cash value of the commodity traded according to a procedure      specified in the contract.

**CCC:***See **Commodity Credit Corporation.***

**CD:***See **Certificate of Deposit.***

**CEA:***See **Commodity Exchange Authority.***

**Certificate of Deposit (CD)**: A time deposit with a specific      maturity evidenced by a certificate. Large-denomination CDS are typically      negotiable.

**CFTC:***See **Commodity Futures Trading      Commission.***

**CFO:** Cancel Former Order.

**Certificated or Certified Stocks:** Stocks of a commodity that have      been inspected and found to be of a quality deliverable against futures      contracts, stored at the delivery points designated as regular or      acceptable for delivery by a commodity exchange. In grain, called      "stocks in deliverable position." *See **Deliverable      Stocks.***

**Changer:** A clearing member of both the Mid-America Commodity      Exchange (MCE) and another futures exchange who, for a fee, will assume      the opposite side of a transaction on the MCE by taking a spread position      between the MCE and another futures exchange which trades an identical,      but larger, contract. Through this service, the changer provides      liquidity for the MCE and an economical mechanism for arbitrage between      the two markets.

**Charting:** The use of graphs and charts in the technical analysis      of futures markets to plot trends of price movements, average movements      of price, volume of trading and open interest. *See **Technical      Analysis.***

**Chartist:** Technical trader who reacts to signals derived from      graphs of price movements.

**Cheapest-to-Deliver:** Usually refers to the selection of bonds      deliverable against an expiring bond futures contract.

**Chooser Option:** An option which is transacted in the present but      which at some prespecified future date is chosen to be either a *put* or a *call* option.

**Churning:** Excessive trading of an account by a broker with control      of the account for the purpose of generating commissions while      disregarding the interests of the customer.

**Circuit Breakers:** A system of trading halts and price limits on      equities and derivative markets designed to provide a cooling-off period      during large, intraday market movements. The first known use of the term      *circuit breaker* in this context was in the *Report**of the      Presidential Task Force on Market Mechanisms* (January 1988), which      recommended that circuit breakers be adopted following the market break      of October 1987.

**C.I.F.:** Cost, insurance and freight paid to a point of destination      and included in the price quoted.

**Class (of options):** Options of the same type (i.e., either puts or      calls, but not both) covering the same underlying futures contract or      physical commodity (e.g., a March call with a strike price of 62 and a      May call with a strike price of 58).

**Clearing:** The procedure through which the clearing house or      association becomes the buyer to each seller of a futures contract, and      the seller to each buyer, and assumes responsibility for protecting      buyers and sellers from financial loss by assuring performance on each      contract.

**Clearing House:** An adjunct to, or division of, a commodity      exchange through which transactions executed on the floor of the exchange      are settled. Also charged with assuring the proper conduct of the      exchange's delivery procedures and the adequate financing of the      trading.

**Clearing Member:** A member of the Clearing House or Association.      All trades of a non-clearing member must be registered and eventually      settled through a clearing member.

**Clearing Price:***See **Settlement Price.***

**Close, The:** The period at the end of the trading session,      officially designated by the exchange, during which all transactions are      considered made "at the close." *Also see **Call.***

**Closing-Out:** Liquidating an existing long or short futures or      option position with an equal and opposite transaction. *Also known as      **Offset.***

**Closing Price (or Range):** The price (or price range) recorded      during trading that takes place in the final moments of a day's      activity that is officially designated as the "close."

**Combination:** Puts and calls held either long or short with      different strike prices and expirations.

**Commercial:** An entity involved in the production, processing, or      merchandising of a commodity.

**Commercial Grain Stocks:** Domestic grain in store in public and      private elevators at important markets and grain afloat in vessels or      barges in lake and seaboard ports.

**Commercial Paper:** Short-term promissory notes issued in bearer      form by large corporations, with maturities ranging from 5 to 270 days.      Since the notes are unsecured, the commercial papers market generally is      dominated by large corporations with impeccable credit ratings.

**Commission:** (1) The charge made by a commission house for buying      and selling commodities; (2) the CFTC.

**Commitments:***See **Open Interest.***

**Commodity Credit Corporation:** A government-owned corporation      established in 1933 to assist American agriculture. Major operations      include price support programs, foreign sales, and export credit programs      for agricultural commodities.

**Commodity Exchange Authority:** A regulatory agency of the U.S.      Department of Agriculture established to administer the Commodity      Exchange Act prior to 1975; the predecessor of the Commodity Futures      Trading Commission.

**Commodity Exchange Commission:** A commission consisting of the      Secretary of Agriculture, Secretary of Commerce, and the Attorney      General, responsible for administering the Commodity Exchange Act prior      to 1975.

**Commodity Futures Trading Commission (CFTC):** The Federal      regulatory agency established by the CFTC Act of 1974 to administer the      Commodity Exchange Act.

**Commodity-Linked Bond:** A bond in which payment to the investor is      dependent on the price level of such commodities as crude oil, gold, or      silver at maturity.

**Commodity Option:***See **Option, Puts** and **Calls.***

**Commodity Pool:** An investment trust, syndicate or similar form of      enterprise operated for the purpose of trading commodity futures or      option contracts.

**Commodity Pool Operator (CPO):** Individuals or firms in businesses      similar to investment trusts or syndicates that solicit or accept funds,      securities or property for the purpose of trading commodity futures      contracts or commodity options.

**Commodity Price Index:** Index or average, which may be weighted, of      selected commodity prices, intended to be representative of the markets      in general or a specific subset of commodities (for example, grains or      livestock).

**Commodity Trading Advisor (CTA):** Individuals or firms that, for      pay, issue analyses or reports concerning commodities, including the      advisability of trading in commodity futures or options.

**Congestion:** (1) A market situation in which shorts attempting to      cover their positions are unable to find an adequate supply of contracts      provided by longs willing to liquidate or by new sellers willing to enter      the market, except at sharply higher prices; (2) in technical analysis, a      period of time characterized by repetitious and limited price      fluctuations.

**Consignment:** A shipment made by a producer or dealer to an agent      elsewhere with the understanding that the commodities in question will be      cared for or sold at the highest obtainable price. Title to the      merchandise shipped on consignment rests with the shipper until the goods      are disposed of according to agreement.

**Contango:** Market situation in which prices in succeeding delivery      months are progressively higher than in the nearest delivery month; the      opposite of "backwardation."    

**Contract:** (1) A term of reference describing a unit of trading for      a commodity future or option; (2) An agreement to buy or sell a specified      commodity, detailing the amount and grade of the product and the date on      which the contract will mature and become deliverable.

**Contract Grades:** Those grades of a commodity which have been      officially approved by an exchange as deliverable in settlement of a      futures contract.

**Contract Market:** (1) A board of trade or exchange designated by      the Commodity Futures Trading Commission to trade futures or options      under the Commodity Exchange Act; (2) Sometimes the futures contract      itself (e.g., corn is a *contract market*).

**Contract Month:***See **Delivery Month.***

**Contract Unit:** The actual amount of a commodity represented in a      contract.

**Controlled Account:** Any account for which trading is directed by      someone other than the owner. *Also called a **Managed Account** or      a **Discretionary Account.***

**Convergence:** The tendency for prices of physicals and futures to      approach one another, usually during the delivery month. *Also called a      "**narrowing of the basis**."*

**Conversion:** When trading options on futures contracts, a position      created by selling a call option, buying a put option, and buying the      underlying futures contract, where the options have the same strike price      and the same expiration.

**Corner:** (1) Securing such relative control of a commodity or      security that its price can be manipulated; (2) In the extreme situation,      obtaining contracts requiring the delivery of more commodities or      securities than are available for delivery.

**Corn-Hog Ratio:***See **Feed Ratio.***

**Cost of Tender:** Total of various charges incurred when a commodity      is certified and delivered on a futures contract.

**Counter-Trend Trading:** In technical analysis, the method by which      a trader takes a position contrary to the current market direction in      anticipation of a change in that direction.

**Coupon (Coupon Rate):** A fixed dollar amount of interest payable      per annum, stated as a percentage of principal value, usually payable in      semiannual installments.

**Cover:** (1) Purchasing futures to offset a short position. *Same      as **Short Covering.****See **Offset, Liquidation;*** (2)      To have in hand the physical commodity when a short futures or leverage      sale is made, or to acquire the commodity that might be deliverable on a      short sale.

**Covered Option:** A short call or put option position which is      covered by the sale or purchase of the underlying futures contract or      physical commodity. For example, in the case of options on futures      contracts, a covered call is a short call position combined with a long      futures position. A covered put is a short put position combined with a      short futures position.

**Cox-Ross-Rubinstein Option Pricing Model:** An option pricing      logarithm developed by J. Cox, S. Ross and M. Rubinstein which can be      adopted to include effects not included in the Black-Scholes model (e.g.,      early exercise and price supports).

**CPO:***See **Commodity Pool Operator.***

**Crack:** In energy futures, the simultaneous purchase of crude oil      futures and the sale of petroleum product futures to establish a refining      margin. *See **Gross Processing Margin.***

**Crop Year:** The time period from one harvest to the next, varying      according to the commodity (i.e., July 1 to June 30 for wheat; September      1 to August 31 for soybeans).

**Cross-Hedge:** Hedging a cash market position in a futures contract      for a different but price-related commodity.

**Cross-Margining:** A procedure for margining related securities,      options, and futures contracts jointly when different clearing houses      clear each side of the position.

**Cross-Rate:** In foreign exchange, the price of one currency in      terms of another currency in the market of a third country. For example,      a London dollar cross-rate could be the price of one U.S. dollar in terms      of deutsche marks on the London market.

**Cross Trading:** Offsetting or noncompetitive match of the buy order      of one customer against the sell order of another, a practice that is      permissible only when executed in accordance with the Commodity Exchange      Act, CFTC regulations, and rules of the contract market.

**Crush Spread:** In the soybean futures market, the simultaneous      purchase of soybean futures and the sale of soybean meal and soybean oil      futures to establish a processing margin. *See **Gross Processing      Margin.***

**CTA: See Commodity Trading Advisor.**

**CTI Codes:*****Customer Type Indicator*** codes. These      consist of four identifiers which describe transactions by the type of      customer for which a trade is effected.. The four codes are: (1) trading      for the member's own account; (2) trading for a proprietary account      of the clearing member's firm; (3) trading for another member who is      currently present on the trading floor or for an account controlled by      such other member; and (4) trading for any other type of customer.      Transaction data classified by the above codes are included in the trade      register report produced by a clearing organization.

**Curb Trading:** Trading by telephone or by other means that takes      place after the official market has closed. Originally it took place in      the street on the curb outside the market. Under CFTC rules, curb trading      is illegal. *Also known as **kerb trading.***

**Current Delivery Month:** The futures contract which matures and      becomes deliverable during the present month. *Also called **Spot      Month.***

**Daily Price Limits:***See **Limit (Up or Down).***

**Day Order:** An order that expires automatically at the end of each      day's trading session. There may be a day order with time      contingency. For example, an "off at a specific time" order is      an order that remains in force until the specified time during the      session is reached. At such time, the order is automatically      canceled.

**Day Traders:** Commodity traders, generally members of the exchange      on the trading floor, who take positions in commodities and then offset      them prior to the close of trading on the same trading day.

**Day Trading:** Establishing and offsetting the same futures market      position within one day.

**Dealer Option:** A put or call on a physical commodity, not      originating on or subject to the rules of an exchange, in which the      obligation for performance rests with the writer of the option. Dealer      options are normally written by firms handling the underlying commodity      and offered to public customers, although the reverse may also be      true.

**Deck:** The orders for purchase or sale of futures and option      contracts held by a floor broker.

**Declaration Date:***See **Expiration Date.***

**Declaration (of Options):***See **Exercise.***

**Default:** Failure to perform on a futures contract as required by      exchange rules, such as failure to meet a margin call, or to make or take      delivery.

**Deferred Futures:** The futures contracts that expire during the      most distant months. *Also called **Back Months.****See **Forward Purchase or Sale.***

**Deliverable Grades:***See **Contract Grades.***

**Deliverable Stocks:** Stocks of commodities located in exchange      approved storage, for which receipts may be used in making delivery on      futures contracts. In the cotton trade, the term refers to cotton      certified for delivery. *Also see **Certificated Stocks.***

**Delivery:** The tender and receipt of the actual commodity, the cash      value of the commodity, or of a delivery instrument covering the      commodity (e.g., warehouse receipts or shipping certificates), used to      settle a futures contract. *See **Notice of Delivery.***

**Delivery, Current:** Deliveries being made during a present month.      Sometimes current delivery is used as a synonym for *nearby      delivery.*

**Delivery Date:** The date on which the commodity or instrument of      delivery must be delivered to fulfill the terms of a contract.

**Delivery Instrument:** A document used to effect delivery on a      futures contract, such as a warehouse receipt or shipping      certificate.

**Delivery Month:** The specified month within which a futures      contract matures and can be settled by delivery.

**Delivery, Nearby:** The nearest traded month. In plural form, one of      the nearer trading months.

**Delivery Notice:** The written notice given by the seller of his      intention to make delivery against an open short futures position on a      particular date. This notice, delivered through the clearing house, is      separate and distinct from the warehouse receipt or other instrument that      will be used to transfer title.

**Delivery Option:** A provision of a futures contract which provides      the short with flexibility in regard to timing, location, quantity, or      quality in the delivery process.

**Delivery Points:** Those locations designated by commodity exchanges      where stocks of a commodity represented by a futures contract may be      delivered in fulfillment of the contract.

**Delivery Price:** The price fixed by the clearing house at which      deliveries on futures are invoiced--generally the price at which the      futures contract is settled when deliveries are made.

**Delta:***See **Delta Value.***

**Delta Margining:** An option margining system used by some exchanges      for exchange members and/or floor traders which equates the changes in      option premiums with the changes in the price of the underlying futures      contract to determine risk factors on which to base the margin      requirements.

**Delta Value:** The expected change in an option's price given a      one-unit change in the price of the underlying futures contract or      physical commodity.

**Deposit:** The initial outlay required by a broker of a client to      open a futures position, returnable upon liquidation of that      position.

**Depository Receipt:***See **Vault Receipt.***

**Derivative:** A financial instrument, traded on or off an exchange,      the price of which is directly dependent upon (i.e., "derived      from") the value of one or more underlying securities, equity      indices, debt instruments, commodities, other derivative instruments, or      any agreed upon pricing index or arrangement (e.g., the movement over      time of the Consumer Price Index or freight rates). Derivatives involve      the trading of rights or obligations based on the underlying product, but      do not directly transfer property. They are used to hedge risk or to      exchange a floating rate of return for fixed rate of return.

**Designated Self Regulatory Organization (DSRO):** Self regulatory      organizations (i.e., the commodity exchanges and the National Futures      Association) must enforce minimum financial and reporting requirements      for their members, among other responsibilities outlined in the      CFTC's regulations. When a futures commission merchant (FCM) is a      member of more than one SRO, the SROs may decide among themselves which      of them will be responsible for assuming these regulatory duties and,      upon approval of the plan by the Commission, be appointed the      "designated self regulatory organization" for that FCM.

**Diagonal Spread:** A spread between two call options or two put      options with different strike prices and different expiration      dates.

**Differentials:** The discount (premium) allowed for grades or      locations of a commodity lower (higher) than the par of basis grade or      location specified in the futures contact. *See **Allowances.***

**Discount:** (1) The amount a price would be reduced to purchase a      commodity of lesser grade; (2) sometimes used to refer to the price      differences between futures of different delivery months, as in the      phrase "July at a discount to May," indicating that the price      for the July futures is lower than that of May.

**Discount Basis:** Method of quoting securities where the price is      expressed as a annualized discount from maturity value.

**Discount Bond:** A bond selling below par. *See **Par.***

**Discretionary Account:** An arrangement by which the holder of an      account gives written power of attorney to someone else, often a broker,      to buy and sell without prior approval of the holder; often referred to      as a "managed account" or "controlled account." *See **Controlled Account.***

**Distant or Deferred Delivery:** Usually means one of the more      distant months in which futures trading is taking place.

**Dominant Future:** That future having the largest number of open      contracts.

**Double Hedging:** As used by the CFTC, it implies a situation where      a trader holds a long position in the futures market in excess of the      speculative limit as an offset to a fixed price sale even though the      trader has an ample supply of the commodity on hand to fill all sales      commitments.

**DSRO:***See **Designated Self Regulatory      Organization.***

**Dual Trading:** Dual trading occurs when: (1) a floor broker      executes customer orders and, on the same day, trades for his own account      or an account in which he has an interest; or (2) an FCM carries customer      accounts and also trades or permits its employees to trade in accounts in      which it has a proprietary interest, also on the same trading day.

**Duration:** A measure of a bond's price sensitivity to changes      in interest rates.

**Ease Off:** A minor and/or slow decline in the price of a      market.

**ECU:***See **European Currency Unit.***

**Efficient Market:** A market in which new information is immediately      available to all investors and potential investors. A market in which all      information is instantaneously assimilated and therefore has no      distortions.

**EFP:** Exchange for Physical. *See **Exchange of Futures for      Cash.***

**Elliot Wave:** (1) A theory named after Ralph Elliot, who contended      that the stock market tends to move in discernible and predictable      patterns reflecting the basic harmony of nature; (2) in technical      analysis, a charting method based on the belief that all prices act as      wavers, rising and falling rhythmically.

**Equity:** The residual dollar value of a futures, option, or      leverage trading account, assuming it was liquidated at current      prices.

**Eurocurrency:** Certificates of Deposit (CDS), bonds, deposits, or      any capital market instrument issued outside of the national boundaries      of the currency in which the instrument is denominated (for example,      Euro-Swiss francs, Euro-Deutsche marks, eurodollars, eurodollar bonds, or      eurodollar CDS).

**Eurodollar:** U.S. dollar deposits placed with banks outside the      U.S. Holders may include individuals, companies, banks and central      banks.

**Eurodollar Bonds:** Bonds issued in Europe by corporate or      government interests outside the boundary of the national capital market,      denominated in dollars.

**Eurodollar CDS:** Dollar-denominated certificates of deposit issued      by a bank outside of the United States, either a foreign bank or U.S.      bank subsidiary.

**European Currency Unit:** The official unit of account of the      European Monetary System. It is a combination or basket of the currencies      from the twelve European Community countries: the Deutsche mark, French      franc, British pound sterling, Irish pound, Italian lira, Belgian franc,      Dutch guilder, Luxembourg franc, Greek drachma, Spanish peseta,      Portuguese escudo, and the Danish krona.

**Even Lot:** A unit of trading in a commodity established by an      exchange to which official price quotations apply. *See **Round      Lot.***

**Exchange of Futures for Cash:** A transaction in which the buyer of      a cash commodity transfers to the seller a corresponding amount of long      futures contracts, or receives from the seller a corresponding amount of      short futures, at a price difference mutually agreed upon. In this way      the opposite hedges in futures of both parties are closed out      simultaneously. *Also called **EFP (Exchange for Physical), AA      (Against Actuals) or Ex-Pit transactions.***

**Exchange Rate:** The price of one currency stated in terms of      another currency.

**Exchange Risk Factor:** The delta value of an option as computed      daily by the exchange on which it is traded.

**Exercise:** To elect to buy or sell, taking advantage of the right      (but not the obligation) conferred by an option contract.

**Exercise (or Strike) Price:** The price specified in the option      contract at which the buyer of a call can purchase the commodity during      the life of the option, and the price specified in the option contract at      which the buyer of a put can sell the commodity during the life of the      option.

**Exotic Options:** Any of a wide variety of options with non-standard      payout structures, including *Asian* options and *Lookback*      options. Exotic options are mostly traded in the over-the-counter      market.

**Expiration Date:** The date on which an option contract      automatically expires; the last day an option can be exercised.

**Extrinsic Value:***See **Time Value.***

**Ex-Pit:***See **Transfer Trades** and **Exchange of Futures      for Cash.***

**FAB Spread:*****F*ive Against Bond.** A futures spread      trade involving the buying (selling) of a five-year Treasury bond futures      contract and the selling (buying) of a long-term (15-30 year) Treasury      bond futures contract.

**Fannie Mae:***See **Federal National Mortgage      Association.***

**FAN Spread:*****F*ive Against Note.** A futures spread      trade involving the buying (selling) of a five-year Treasury note futures      contract and the selling (buying) of a ten-year Treasury bond futures      contract.

**Fast Tape:** Transactions in the pit or ring take place in such      volume and with such rapidity that price reporters are behind with price      quotations, so insert "FAST" and show a range of prices.

**Federal National Mortgage Association (FNMA):** A corporation      created by Congress to support the secondary mortgage market; it      purchases and sells residential mortgages insured by the Federal Home      Administration (FHA) or guaranteed by the Veteran's Administration      (VA).

**Feed Ratio:** The relationship of the cost of feed, expressed as a      ratio to the sale price of animals, such as the corn-hog ratio. These      serve as indicators of the profit margin or lack of profit in feeding      animals to market weight.

**FIA:***See **Futures Industry Association.***

**Fictitious Trading:** Wash trading, bucketing, cross trading, or      other schemes which give the appearance of trading. Actually, no bona      fide, competitive trade has occurred.

**Fill or Kill Order:** An order which demands immediate execution or      cancellation.

**Financial Instruments:** As used by the CFTC, this term generally      refers to any futures or option contract that is not based on an      agricultural commodity or a natural resource. It includes currencies,      securities, mortgages, commercial paper, and indices of various      kinds.

**First Notice Day:** The first day on which notices of intent to      deliver actual commodities against futures market positions can be      received. First notice day may vary with each commodity and      exchange.

**Fix, Fixing:***See **Gold Fixing.***

**Fixed Income Security:** A security whose nominal (or current      dollar) yield is fixed or determined with certainty at the time of      purchase.

**Floor Broker:** Any person who, in any pit, ring, post or other      place provided by a contract market for the meeting of persons similarly      engaged, executes for another person any orders for the purchase or sale      of any commodity for future delivery.

**Floor Trader:** An exchange member who executes his own trades by      being personally present in the pit for futures trading. *See **Local.***

**F.O.B. (Free On Board):** Indicates that all delivery, inspection      and elevation or loading costs involved in putting commodities on board a      carrier have been paid.

**Forced Liquidation:** The situation in which a customer's      account is liquidated (open positions are offset) by the brokerage firm      holding the account, usually after notification that the account is      undercapitalized (margin calls).

**Force Majeure:** A clause in a supply contract which permits either      party not to fulfill the contractual commitments due to events beyond      their control. These events may range from strikes to export delays in      producing countries.

**Foreign Exchange:** Foreign Currency. On the foreign exchange      market, foreign currency is bought and sold for immediate or future      delivery.

**Forward:** In the future.

**Forwardation:***See **Contango.***

**Forward Contracting:** A cash transaction common in many industries,      including commodity merchandising, in which a commercial buyer and seller      agree upon delivery of a specified quality and quantity of goods at a      specified future date. A price may be agreed upon in advance, or there      may be agreement that the price will be determined at the time of      delivery.

**Forward Market:** Refers to informal (non-exchange) trading of      commodities to be delivered at a future date. Contracts for forward      delivery are "personalized" (i.e., delivery time and amount are      as determined between seller and customer).

**Forward Months:** Futures contracts, currently trading, calling for      later or distant delivery. *See **Deferred Futures.***

**Forward Purchase or Sale:** A purchase or sale between commercial      parties of an actual commodity for deferred delivery.

**Free Crowd System:** A system of trading, common to most U.S.      commodity exchanges, where all floor members may bid and offer      simultaneously either for their own accounts or for the accounts of      customers, and transactions may take place simultaneously at different      places in the trading ring. *Also see **Board Broker System** and      **Specialist System.***

**Frontrunning:** With respect to commodity futures and options,      taking a futures or option position based upon non-public information      regarding an impending transaction by another person in the same or      related future or option.

**Full Carrying Charge, Full Carry:***See **Carrying      Charges.***

**Fundamental Analysis:** Study of basic, underlying factors which      will affect the supply and demand of the commodity being traded in      futures contracts. *See **Technical Analysis.***

**Fungibility:** The characteristic of interchangeability. Futures      contracts for the same commodity and delivery month are fungible due to      their standardized specifications for quality, quantity, delivery date      and delivery locations.

**Futures:***See **Futures Contract.***

**Futures Commission Merchant (FCM):** Individuals, associations,      partnerships, corporations and trusts that solicit or accept orders for      the purchase or sale of any commodity for future delivery on or subject      to the rules of any contract market and that accept payment from or      extend credit to those whose orders are accepted.

**Futures Contract:** An agreement to purchase or sell a commodity for      delivery in the future: (1) at a price that is determined at initiation      of the contract; (2) which obligates each party to the contract to      fulfill the contract at the specified price; (3) which is used to assume      or shift price risk; and (4) which may be satisfied by delivery or      offset.

**Futures-equivalent:** A term frequently used with reference to      speculative position limits for options on futures contracts. The      futures-equivalent of an option position is the number of options      multiplied by the previous day's risk factor or delta for the option      series. For example, 10 deep out-of-money options with a risk factor of      0.20 would be considered 2 futures-equivalent contracts. The delta or      risk factor used for this purpose is the same as that used in delta-based      margining and risk analysis systems.

**Futures Industry Association (FIA):** A membership organization for      futures commission merchants (FCMs) which, among other activities, offers      education courses on the futures markets, disburses information and      lobbies on behalf of its members.

**Futures Price:** (1) Commonly held to mean the price of a commodity      for future delivery that is traded on a futures exchange. (2) The price      of any futures contract.

**Ginnie Mae:** Pass-through mortgage-backed certificates guaranteed      by the Government National Mortgage Association (GNMA or Ginnie Mae). The      certificates are backed by pools of FHA insured and/or VA guaranteed      residential mortgages, with the mortgage and not held in safekeeping by a      custodial financial institution. *Also called **G.N.M.A.s****or **G.N.M.A. certificates.***

**Ginzy Trading:** A trade practice in which a floor broker, in      executing an order -- particularly a large order -- will fill a portion      of the order at one price and the remainder of the order at another price      to avoid an exchange's rule against trading at fractional increments      or "split ticks." In In re Murphy, [1984-86 Transfer      Binder] Comm. Fut L. Rep. (CCH) at pp. 31,353-4 (Sept. 25, 1985), the      Commission found that *ginzy trading* was a noncompetitive trading      practice in violation of section 4c(a)(B) of the Commodity Exchange Act      and CFTC regulation 1.38(a).

**Give Up:** A contract executed by one broker for the client of      another broker that the client orders to be turned over to the second      broker. The broker accepting the order from the customer collects a wire      toll from the carrying broker for the use of the facilities. Often used      to consolidate many small orders or to disperse large ones.

**Globex:** An international electronic trading system for futures and      options that allows participating exchanges to list their products for      trading after the close of the exchanges' open outcry trading hours.      Developed by *Reuters Limited* for use by the *Chicago Mercantile      Exchange (CME)*, Globex was launched on June 25, 1992, for certain CME      contracts. Various MATIF (Marche a Terme International de France)      contracts began trading on the system on March 15, 1993.

**G.N.M.A.:** The Government National Mortgage Association; a      government agency within the Department of Housing and Urban Development      that, among other things, guarantees payment on mortgage-backed      certificates. (*See **Ginnie Mae**).*

**Gold Certificate:** A certificate attesting to a person's      ownership of a specific amount of gold bullion.

**Gold Fixing (Gold Fix):** The setting of the gold price at 10:30 AM      (first fixing) and 3:00 PM (second fixing) in London by five      representatives of the London Gold Market. *See **London Gold      Market.***

**Gold/Silver Ratio:** The number of ounces of silver required to buy      one ounce of gold at current spot prices.

**Good This Week Order (GTW):** Order which is valid only for the week      in which it is placed.

**Good 'Til Canceled Order (GTC):** Order which is valid at any      time during market hours until executed or canceled. *See **Open      Order.***

**GPM:***See **Gross Processing Margin.***

**Grades:** Various qualities of a commodity.

**Grading Certificates:** A formal document setting forth the quality      of a commodity as determined by authorized inspectors or graders.

**Grain Futures Act:** Federal statute which regulated trading in      grain futures, effective June 22, 1923; administered by the U.S.      Department of Agriculture; amended in 1936 by the Commodity Exchange      Act.

**Grantor:** The maker, writer, or issuer of an option contract who,      in return for the premium paid for the option, stands ready to purchase      the underlying commodity (or futures contract) in the case of a put      option or to sell the underlying commodity (or futures contract) in the      case of a call option.

**Gross Processing Margin (GPM):** Refers to the difference between      the cost of a commodity and the combined sales income of the finished      products which result from processing the commodity. Various industries      have formulas to express the relationship of raw material costs to sales      income from finished products. *See **Crack** and **Crush.***

**GTC:***See **Good 'Til Canceled order.***

**GTW:***See **Good This Week order.***

**Haircut:** (1) In determining whether assets meet capital      requirements, a percentage reduction in the stated value of assets. (2)      In computing the worth of assets deposited as collateral or margin, a      reduction from market value.

**Hardening:** (1) Describes a price which is gradually stabilizing;      (2) a term indicating a slowly advancing market.

**Heavy:** A market in which prices are demonstrating either an      inability to advance or a slight tendency to decline.

**Hedge Ratio:** Ratio of the value of futures contracts purchased or      sold to the value of the cash commodity being hedged, a computation      necessary to minimize basis risk.

**Hedging:** Taking a position in a futures market opposite to a      position held in the cash market to minimize the risk of finanical loss      from an adverse price change; a purchase or sale of futures as a      temporary substitute for a cash transaction that will occur later.

**Hog-Corn Ratio:***See **Feed Ratio.***

**Hybrid-Instruments:** Financial instruments that possess, in varying      combinations, characteristics of forward contracts, futures contracts,      option contracts, debt instruments, bank depository interests, and other      interests. Certain hybrid instruments are exempt from CFTC      regulation.

**IB:***See **Introducing Broker.***

**Index Arbitrage:** The simultaneous purchase (sale) of stock index      futures and the sale (purchase) of some or all of the component stocks      which make up the particular stock index to profit from sufficiently      large intermarket spreads between the futures contract and the index      itself.

**Initial Deposit:***See **Initial Margin.***

**Initial Margin:** Customers' funds put up as security for a      guarantee of contract fulfillment at the time a futures market position      is established. *See **Original Margin.***

**In Sight:** The amount of a particular commodity that arrives at      terminal or central locations is or near producing areas. When a      commodity is "in sight," it is inferred that reasonably prompt      delivery can be made; the quantity and quality also become known factors      rather than estimates.

**Intercommodity Spread:** A spread in which the long and short legs      are in two different but generally related commodity markets. *Also      called an **intermarket spread.****See **Spread.***

**Interdelivery Spread:** A spread involving two different months of      the same commodity. *Also called an **intracommodity spread.****See **Spread.***

**Interest Rate Futures:** Futures contracts traded on fixed income      securities such as G.N.M.A.s, U.S. Treasury issues, or CDS. Currency is      excluded from this category, even though interest rates are a factor in      currency values.

**Intermarket Spread:***See **Spread** and **Intercommodity      Spread.***

**International Commodities Clearinghouse (ICCH):** An independent      organization that serves as a clearinghouse for most futures markets in      London, Bermuda, Singapore, Australia, and New Zealand.

**In-The-Money:** A term used to describe an option contract that has      a positive value if exercised. A call at $400 on gold trading at $10 is      in-the-money 10 dollars.

**Intracommodity Spread:***See **Spread** and **Interdelivery      Spread.***

**Intrinsic Value:** A measure of the value of an option or a warrant      if immediately exercised. The amount by which the current price for the      underlying commodity or futures contract is above the strike price of a      call option or below the strike price of a put option for the commodity      or futures contract.

**Introducing Broker (or IB):** Any person (other than a person      registered as an "associated person" of a futures commission      merchant) who is engaged in soliciting or in accepting orders for the      purchase or sale of any commodity for future delivery on an exchange who      does not accept any money, securities, or property to margin, guarantee,      or secure any trades or contracts that result therefrom.

**Inverted Market:** A futures market in which the nearer months are      selling at prices higher than the more distant months; a market      displaying "inverse carrying charges," characteristic of      markets with supply shortages. *See **Backwardation.***

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

**ISDA:***The International Swap Dealers Association, Inc.,* a      New York-based group of major international swap dealers, which has      published the *Code of Standard Wording, Assumptions and Provisions for      Swaps,* or Swaps Code, for U.S. dollar interest rate swaps as well as      standard master interest rate and currency swap agreements and      definitions for use in connection with the creation and trading of      swaps.

**Job Lot:** A form of contract having a smaller unit of trading than      is featured in a regular contract.

**Kerb Trading or Dealing:***See **Curb Trading.***

**Large Order Execution (LOX) Procedures:** Rules in place at the      Chicago Mercantile Exchange that authorize a member firm which receives a      large order from an initiating party to solicit counterparty interest off      the exchange floor prior to open execution of the order in the pit and      that provide for special surveillance procedures. The parties determine a      maximum quantity and an "intended execution price."      Subsequently, the initiating party's order quantity is exposed to the      pit; any bids (or offers) up to and including those at the intended      execution price are hit (acceptable). The unexecuted balance is then      crossed with the contraside trader found using the LOX procedures.

**Large Traders:** A large trader is one who holds or controls a      position in any one future or in any one option expiration series of a      commodity on any one contract market equaling or exceeding the exchange      or CFTC-specified reporting level.

**Last Notice Day:** The final day on which notices of intent to      deliver on futures contracts may be issued.

**Last Trading Day:** Day on which trading ceases for the maturing      (current) delivery month.

**Leaps:** Long-dated, exchange-traded options.

**Leverage Contract:** A contract, standardized as to terms and      conditions, for the long-term (ten years or longer) purchase (long      leverage contract) or sale (short leverage contract) by a leverage      customer of leverage commodity which provides for: (1) participation by      the leverage transaction merchant as a principal in each leverage      transaction; (2) initial and maintenance margin payments by the leverage      customer; (3) periodic payment by the leverage customer or accrual by the      leverage transaction merchant to the leverage customer of a variable      carrying charge or fee on the initial value of the contract plus any      margin deposits made by the leverage customer in connection with a short      leverage contract; (4) delivery of a commodity in an amount and form      which can be readily purchased and sold in normal commercial or retail      channels; (5) delivery of the leverage commodity after satisfication of      the balance due on the contract; and (6) determination of the contract      purchase and repurchase, or sale and resale, prices by the leverage      transaction merchant.

**Leverage Dealer:***See **Leverage Transaction      Merchant.***

**Leverage Transaction Merchant:** Any individual, association,      partnership, corporation, or trust that is engaged in the business of      offering to enter into, entering into, or confirming the execution of      leverage contracts, or soliciting or accepting orders for leverage      contracts, and who accepts leverage customer funds or extends credit in      lieu of those funds.

**Licensed Warehouse:** A warehouse approved by exchange from which a      commodity may be delivered on a futures contract. *See **Regular      Warehouse.***

**Life of Contact:** Period between the beginning of trading in a      particular futures contract and the expiration of trading. In some cases      this phrase denotes the period already passed in which trading has      already occurred. For example, "The life-of-contract high so far is      $2.50." *Same as **Life of Delivery** or **Life of the      Future.***

**Limit (Up or Down):** The maximum price advance or decline from the      previous day's settlement price permitted during one trading session,      as fixed by the rules of an exchange. *See **Daily Price      Limits.***

**Limit Move:** A price that has advanced or declined the permissible      limit during one trading session, as fixed by the rules of a contract      market.

**Limit Only:** The definite price stated by a customer to a broker      restricting the execution of an order to buy for not more than, or to      sell for not less than, the stated price.

**Limit Order:** An order in which the customer specifies a price      limit or other condition, such as time of an order, as contrasted with a      market order which implies that the order should be filled as soon as      possible.

**Liquidation:** The closing out of a long position. The term is      sometimes used to denote closing out a short position, but this is more      often referred to as covering. *See **Cover.***

**Liquid Market:** A market in which selling and buying can be      accomplished with minimal price change.

**Local:** A member of a U.S. exchange who trades for his own account      and/or fills orders for customers and whose activities provide market      liquidity. *See **Floor Trader.***

**Locked-In:** A hedged position that cannot be lifted without      offsetting both sides of the hedge (spread). *See **Hedging.***      Also refers to being caught in a limit price move.

**London Gold Market:** Refers to the five dealers who set (fix) the      gold price in London: Mocatta & Goldsmid, N. Rothschild & Sons,      Johnson Matthey, Sharps Pixley, and Samuel Montagu & Co.

**London Option:** A generic term sometimes used to describe options      on physical commodities or on futures contracts traded abroad (typified      by options on London commodity markets). These options, which often had      nothing whatsoever to do with legitimate foreign markets, gained      notoriety--prior to their ban in the United States in 1978--because of      the sales practices and fraud allegations associated with the American      dealers who sold them.    

**Long:** (1) One who has bought a futures contract to establish a      market position; (2) a market position which obligates the holder to take      delivery; (3) one who owns an inventory of commodities. *See **Short.***

**Long Hedge:** Purchase of futures against the fixed price forward      sale of a cash commodity.

**Long the Basis:** A person or firm that has bought the spot      commodity and hedged with a sale of futures is said to be *long the      basis.*

**Lookback Option:** An option whose payoff depends on the minimum or      maximum price of the underlying asset during some portion of the life of      the option.

**Lot:** A unit of trading. *See **Even Lot, Job Lot,** and **Round Lot.***

**LTM:** Leverage Transaction Merchant.

**Maintenance Margin:***See **Margin.***

**Managed Account:***See **Controlled Account** and **Discretionary Account.***

**Margin:** The amount of money or collateral deposited by a customer      with his broker, by a broker with a clearing member, or by a clearing      member with the clearinghouse, for the purpose of insuring the broker or      clearinghouse against loss on open futures contracts. The margin is not      partial payment on a purchase. (1) Initial margin is the total amount of      margin per contract required by the broker when a futures position is      opened; (2) Maintenance margin is a sum which must be maintained on      deposit at all times. If the equity in a customer's account drops to,      or under, the level because of adverse price movement, the broker must      issue a margin call to restore the customer's equity. *See **Variation Margin.***

**Margin Call:** (1) A request from a brokerage firm to a customer to      bring margin deposits up to initial levels; (2) a request by the      clearinghouse to a clearing member to make a deposit of original margin,      or a daily or intra-day variation payment, because of adverse price      movement, based on positions carried by the clearing member.

**Market Correction:** In technical analysis, a small reversal in      prices following a significant trending period.

**Marketer:***See **Distributor.***

**Market-if-Touched (MIT) Order:** An order that becomes a market      order when a particular price is reached. A sell MIT is placed above the      market; a buy MIT is placed below the market. *Also referred to as a      **board order.***

**Market Marker:** A professional securities dealer who has an      obligation to buy when there is an excess of sell orders and to sell when      there is an excess of buy orders. By maintaining an offering price      sufficiently higher than their buying price, these firms are compensated      for the risk involved in allowing their inventory of securities to act as      a buffer against temporary order imbalances. In the commodities industry,      this term is sometimes loosely used to refer to a floor trader or local      who, in speculating for his own account, provides a market for commercial      users of the market. *See **Specialist System.***

**Market-on-Close:** An order to buy or sell at the end of the trading      session at a price within the closing range of prices. *See **Stop-Close-Only Order.***

**Market-on-Opening:** An order to buy or sell at the beginning of the      trading session at a price within the opening range of prices.

**Market Order:** An order to buy or sell a futures contract at      whatever price is obtainable at the time it is entered in the ring or      pit. *See **At-The-Market.***

**Mark-to-Market:** Daily cash flow system used by U.S. futures      exchanges to maintain a minimum level of margin equity for a given      futures or option contract position by calculating the gain or loss in      each contract position resulting from changes in the price of the futures      or option contracts at the end of each trading day.

**Maturity:** Period within which a futures contract can be settled by      delivery of the actual commodity.

**Maximum Price Fluctuation:***See **Limit (Up or      Down).***

**Member Rate:** Commission charged for the execution of an order for      a person who is a member of the exchange.

**Minimum Price Contract:** A hybrid commercial forward contract for      agricultural products which includes a provision guaranteeing the person      making delivery a minimum price for the product. For agricultural      commodities, these contracts became much more common with the      introduction of exchange-traded options on futures contracts, which      permit buyers to hedge the price risks associated with such      contracts.

**Minimum Price Fluctuation:** Smallest increment of price movement      possible in trading a given contract.

**Momentum:** In technical analysis, the relative change in price over      a specific time interval. Often equated with speed or velocity and      considered in terms of relative strength.

**Money Market:** Short-term debt instruments.

**Naked Call:***See **Naked Option.***

**Naked Option:** The sale of a call or put option without holding an      offsetting position in the underlying commodity.

**Naked Put:***See **Naked Option.***

**National Futures Association (NFA):** A self regulatory organization      composed of futures commission merchants, commodity pool operators,      commodity trading advisors, introducing brokers, leverage transaction      merchants, commodity exchanges, commercial firms, and banks, that is      responsible--under CFTC oversight--for certain aspects of the regulation      of FCMs, CPOs, IBs, LTMs, and their associated persons, focusing      primarily on the qualifications and proficiency, financial condition,      retail sales practices, and business conduct of these futures      professionals.

**Nearbys:** The nearest delivery months of a commodity futures      market.

**Nearby Delivery Month:** The month of the futures contract closest      to maturity.

**Negative Carry:** The cost of financing a financial instrument (the      short-term rate of interest), when the cost is above the current return      of the financial instrument. *See **Carrying Charges** and **Positive Carry.***

**Net Position:** The difference between the open long contracts and      the open short contracts held by a trader in any one commodity.

**NFA:** National Futures Association.

**NOB Spread:*****N*ote Against Bond.** A futures spread      trade involving the buying (selling) of a Treasury note futures contract      and the selling (buying) of a Treasury bond futures contract.

**Non-Member Traders:** Speculators and hedgers who trade on the      exchange through a member but do not hold exchange memberships.

**Nominal Price (or Nominal Quotation):** Computed price quotation on      futures for a period in which no actual trading took place, usually an      average of bid and asked prices.

**Notice Day:** Any day on which notices of intent to deliver on      futures contracts may be issued.

**Notice of Delivery:** A notice that must be presented by the seller      of a futures contract to the clearinghouse. The clearinghouse then      assigns the notice and subsequent delivery instrument to a buyer. *Also      **Notice of Intention to Deliver.***

**Notional Amount:** The amount (in an interest rate swap, forward      rate agreement, or other derivative instrument) or each of the amounts      (in a currency swap) to which interest rates are applied (whether or not      expressed as a rate or stated on a coupon basis) in order to calculate      periodic payment obligations. *Also called the **notional principal      amount,** the **contract amount,** the **reference amount,** and      the **currency amount.***

**Offer:** An indication of willingness to sell at a given price;      opposite of bid.

**Offset:** Liquidating a purchase of futures contracts through the      sale of an equal number of contracts of the same delivery month, or      liquidating a short sale of futures through the purchase of an equal      number of contracts of the same delivery month. *See **Cover.***

**Omnibus Account:** An account carried by one futures commission      merchant with another futures commission merchant in which the      transactions of two or more persons are combined and carried in the name      of the originating broker rather than designated separately.

**On Track (or Track Country Station):** (1) A type of deferred      delivery in which the price is set f.o.b. seller's location, and the      buyer agrees to pay freight costs to his destination; (2) commodities      loaded in railroad cars on track.

**Opening Price (or Range):** The price (or price range) recorded      during the period designated by the exchange as the official      opening.

**Opening, The:** The period at the beginning of the trading session      officially designated by the exchange during which all transactions are      considered made "at the opening."

**Open Interest:** The total number of futures contracts long or short      in a delivery month or market that has been entered into and not yet      liquidated by an offsetting transaction or fulfilled by delivery. *Also      called **Open Contracts** or **Open Commitments.***

**Open Order (or Orders):** An order that remains in force until it is      canceled or until the futures contracts expire. *See **Good 'Til      Canceled** and **Good This Week** orders.*

*Open Outcry:* Method of public auction required to make bids and      offers in the trading pits or rings of commodity exchanges.

**Option:** (1) A commodity option is a unilateral contract which      gives the buyer the right to buy or sell a specified quantity of a      commodity at a specific price within a specified period of time,      regardless of the market price of that commodity. *Also see **Put**      and **Call;*** (2) A term sometimes erroneously applied to a      futures contract. It may refer to a specific delivery month, as the      "July Option."

**Option Buyer:** The person who buys calls, puts, or any combination      of calls and puts.

**Option Grantor:** The person who originates an option contract by      promising to perform a certain obligation in return for the price of the      option. *Also known as **Option Writer.***

**Original Margin:** Term applied to the initial deposit of margin      money each clearing member firm is required to make according to      clearinghouse rules based upon positions carried, determined separately      for customer and proprietary positions; similar in concept to the initial      margin or security deposit required of customers by exchange regulations.      *See **Initial Margin.***

**Out-Of-The-Money:** A term used to describe an option that has no      intrinsic value. For example, a call at $400 on gold trading at $390 is      out-of-the-money 10 dollars.

**Out Trade:** A trade which cannot be cleared by a clearinghouse      because the trade data submitted by the two clearing members involved in      the trade differs in some respect (e.g., price and/or quantity). In such      cases, the two clearing members or brokers involved must reconcile the      discrepancy, if possible, and resubmit the trade for clearing. If an      agreement cannot be reached by the two clearing members or brokers      involved, the dispute would be settled by an appropriate exchange      committee.

**Overbought:** A technical opinion that the market price has risen      too steeply and too fast in relation to underlying fundamental factors.      Rank and file traders who were bullish and long have turned      bearish.

**Overnight Trade:** A trade which is not liquidated on the same      trading day in which it was established.

**Oversold:** A technical opinion that the market price has declined      too steeply and too fast in relation to underlying fundamental factors.      Rank and file traders who were bearish and short have turned      bullish.

**P&S (Purchase and Sale Statement):** A statement sent by a      commission house to a customer when any part of a futures position is      offset, showing the number of contracts involved, the prices at which the      contracts were bought or sold, the gross profit or loss, the commission      charges, the net profit or loss on the transactions, and the      balance.

**Paper Profit or Loss:** The profit or loss that would be realized if      open contracts were liquidated as of a certain time or a certain      price.

**Par:** (1) Refers to the standard delivery point(s) and/or quality      of a commodity that is deliverable on a futures contract at contract      price. Serves as a benchmark upon which the base discounts or premiums      for varying quality and delivery locations. (2) In bond markets, an index      (usually 100) representing the face value of a bond.

**Path Dependent Option:** An option whose valuation and payoff      depends on the realized price path of the underlying asset, such as an      *Asian* option or a *Lookback* option.

**Pay/Collect:** A shorthand method of referring to the payment of a      loss (pay) and receipt of a gain (collect) by a clearing member to or      from a clearing organization that occurs after a futures position has      been marked-to-market. *See **Variation Margin.***

**Payment-in-Kind:** Refers to an alternative to cash payments to      producers of various commodities under the U.S. Department of Agriculture      acreage control program authorized by Congress in 1985. The payments      consisted of generic certificates which could be exchanged for      commodities held in government warehouses or redeemed for equivalent      monetary value.

**Pegged Price:** The price at which a commodity has been fixed by      agreement.

**Pegging:** Effecting commodity transactions to prevent a decline in      the price of the commodity so that previously written put options will      expire worthless, thus protecting premiums previously received.

**Pit:** A specially constructed arena on the trading floor of some      exchanges where trading in a futures contract is conducted. On other      exchanges the term "ring" designates the trading area for a      commodity. *See **Ring.***

**Pit Brokers:***See **Floor Broker.***

**Point:** A measure of price change equal to       1/100 of one cent in most futures traded in decimal      units. In grains, it is of one cent; in T-bonds, it is one percent of      par. *See **Tick.***

**Point-And-Figure:** A method of charting which uses prices to form      patterns of movement without regard to time. It defines a price trend as      a continued movement in one direction until a reversal of a predetermined      criterion is met.

**Point Balance:** A statement prepared by futures commission      merchants to show profit or loss on all open contracts by computing them      to an official closing or settlement price, usually at calendar month      end.

**Pork Bellies:** One of the major cuts of the hog carcass that, when      cured, becomes bacon.

**Portfolio Insurance:** A trading strategy which attempts to alter      the nature of price changes in a portfolio to substantially reduce the      likelihood of returns below some predetermined level for an established      period of time. This can be achieved by moving assets among stocks, cash      and fixed-income securities or, with the advent of stock index futures      contracts, by hedging a stock-only portfolio by selling stock index      futures in a declining market or purchasing futures in a rising market.      The objective is to create an exposure similar to that of a stock      portfolio with a protective purchased put option.

**Position:** An interest in the market, either long or short, in the      form of one or more open contracts. Also, "in position" refers      to a commodity located where it can readily be moved to another point or      delivered on a futures contract. Commodities not so situated are      "out of position." Soybeans in Mississippi are out of position      for delivery in Chicago, but in position for export shipment from the      Gulf.

**Position Limit:** The maximum position, either net long or net      short, in one commodity future (or option) or in all futures (or options)      of one commodity combined which may be held or controlled by one person      as prescribed by an exchange and/or by the CFTC.

**Position Trader:** A commodity trader who either buys or sells      contracts and holds them for an extended period of time, as distinguished      from the *day trader,* who will normally initiate and offset a      futures position within a single trading session.

**Positive Carry:** The cost of financing a financial instrument (the      short-term rate of interest), where the cost is less than the current      return of the financial instrument. *See also **Carrying Charges**      and **Negative Carry.***

**Posted Price:** An announced or advertised price indicating what a      firm will pay for a commodity or the price at which the firm will sell      it.

**Prearranged Trading:** Trading between brokers in accordance with an      expressed or implied agreement or understanding, which is a violation of      the Commodity Exchange Act and CFTC regulations.

**Premium:** (1) the amount a price would be increased to purchase a      better quality commodity; (2) refers to a futures delivery month selling      at a higher price than another, as "July is at a premium over      May;" (3) cash prices that are above the futures price, such as in      foreign exchanges. If the forward rate for Italian lira is at a premium      to spot lira, it is selling above the spot price. *See***Contango,      Discount;** (4) the money, securities or property the buyer pays to the      writer for granting an option contract.

**Price Basing:** A situation where producers, processors, merchants      or consumers of a commodity establish commercial transaction prices based      on the futures prices for that or a related commodity (e.g., an offer to      sell corn at 5 cents over the December futures price). This phenomenon is      commonly observed in grain and metal markets.

**Price Discovery:** The process of determining the price level for a      commodity based on supply and demand factors.

**Price Manipulation:** Any planned operation, transaction or practice      calculated to cause or maintain an artificial price.

**Price Movement Limit:***See **Limit (Up or Down).***

**Primary Market:** (1) For producers, their major purchaser of      commodities; (2) in commercial marketing channels, an important center at      which spot commodities are concentrated for shipment to terminal markets;      and (3) to processors, the market that is the major supplier of their      commodity needs.

**Principals' Market:** A market where the ring dealing members      act as principals for the transactions they conclude across the ring and      with their clients.

**Privileges:***See **Option.***

**Program Trading:** The purchase (or sale) of a large number of      stocks contained in or comprising a portfolio. Originally called      "program" trading when index funds and other institutional      investors began to embark on large-scale buying or selling campaigns or      "programs" to invest in a manner which replicated a target      stock index, the term now also commonly includes computer aided stock      market buying or selling programs, portfolio insurance, and index      arbitrage.

**Prompt Date:** The date on which the buyer of an option will buy or      sell the underlying commodity (or futures contract) if the option is      exercised.

**Public:** In trade parlance, non-professional speculators as      distinguished from hedgers and professional speculators or traders.

**Public Elevators:** Grain elevators in which bulk storage of grain      is provided for the public for a fee. Grain of the same grade but owned      by different persons is usually mixed or commingled as opposed to storing      it "identity preserved." Some elevators are approved by      exchanges as "regular" for delivery on futures contracts.

**Purchase and Sale Statement:***See **P&S.***

**Puts:** Option contracts which give the holder the right but not the      obligation to sell a specified quantity of a particular commodity or      other interest at a given price (the "strike price") prior to      or on a future date. Also called "put option," they will have a      higher (lower) value the lower (higher) the current market value of the      underlying article is relative to the strike price.

**Put Option:** An option to sell a specified amount of a commodity at      an agreed price and time at any time until the expiration of the option.      A put option is purchased to protect against a fall in price. The buyer      pays a premium to the seller/grantor of this option. The buyer has the      right to sell the commodity or enter into a short position in the futures      market if the option is exercised. *Also see **Call      Option.***

**Pyramiding:** The use of profits on existing positions as margin to      increase the size of the position, normally in successively smaller      increments.

**Quick Order:***See **Fill or Kill Order.***

**Quotation:** The actual price or the bid or ask price of either cash      commodities or futures contracts.

**Rally:** An upward movement of prices. *Same as **Recovery.***

**Random Walk:** An economic theory that price movements in the      commodity futures markets and in the securities markets are completely      random in character (i.e., past prices are not a reliable indicator of      future prices).

**Range:** The difference between the high and low price of a      commodity during a given period.

**Ratio Hedge:** The number of options compared to the number of      futures contracts bought or sold in order to establish a hedge that is      risk neutral.

**Ratio Spread:** This strategy, which applies to both puts and calls,      involves buying or selling options at one strike price in greater number      than those bought or sold at another strike price.

**Reaction:** The downward price movement tendency of a commodity      after a price advance.

**Recovery:** An upward price movement after a decline. *Same as **Rally.***

**Regular Warehouse:** A processing plant or warehouse that satisfies      exchange requirements for financing, facilities, capacity, and location      and has been approved as acceptable for delivery of commodities against      futures contracts. *See **Licensed Warehouse.***

**Replicating Portfolio:** A portfolio of assets for which changes in      value match those of a target asset. For example, a portfolio replicating      a standard option can be constructed with certain amounts of the asset      underlying the option and bonds. *Sometimes referred to as a **Synthetic Asset.***

**Reporting Level:** Sizes of positions set by the exchanges and/or      the CFTC at or above which commodity traders or brokers who carry these      accounts must make daily reports about the size of the position by      commodity, by delivery month, and whether the position is controlled by a      commercial or non-commercial trader.

**Resistance:** In technical trading, a price area where new selling      will emerge to dampen a continued rise. *Also see **Support.***

**Resting Order:** An order to buy at a price below or to sell at a      price above the prevailing market that is being held by a floor broker.      Such orders may either be day orders or open orders.

**Retender:** In specific circumstances, some contract markets permit      holders of futures contracts who have received a delivery notice through      the clearing house to sell a futures contract and return the notice to      the clearinghouse to be reissued to another long; others permit transfer      of notices to another buyer. In either case, the trader is said to have      retendered the notice.

**Retracement:** A reversal within a major price trend.

**Reversal:** A change of direction in prices.

**Reverse Conversion:** With regard to options, a position created by      buying a call option, selling a put option, and selling the underlying      futures contract.

**Riding the Yield Curve:** Trading in an interest rate futures      according to the expectations of change in the yield curve.

**Ring:** A circular area on the trading floor of an exchange where      traders and brokers stand while executing futures trades. Some exchanges      use pits rather than rings. *See **Pit.***

**Risk Factor:***See **Delta Value.***

**Risk/Reward Ratio:** The relationship between the probability of      loss and profit. This ratio is often used as a basis for trade selection      or comparison.

**Roll-Over:** A trading procedure involving the shift of one month of      a straddle into another future month while holding the other contract      month. The shift can take place in either the long or short straddle      month. The term also applies to lifting a near futures position and      re-establishing it in a more deferred delivery month.

**Round Lot:** A quantity of a commodity equal in size to the      corresponding futures contract for the commodity. *See **Even      Lot.***

**Round Turn:** A completed transaction involving both a purchase and      a liquidating sale, or a sale followed by a covering purchase.

**Rules:** The principles for governing an exchange. In some      exchanges, rules are adopted by a vote of the membership, while      regulations can be imposed by the governing board.

**Sample Grade:** In commodities, usually the lowest quality of a      commodity, too low to be acceptable for delivery in satisfaction of      futures contracts.

**Scale Down (or Up):** To purchase or sell a *scale down* means      to buy or sell at regular price intervals in a declining market. To buy      or sell on *scale up* means to buy or sell at regular price      intervals as the market advances.

**Scalper:** A speculator on the trading floor of an exchange who buys      and sells rapidly, with small profits or losses, holding his positions      for only a short time during a trading session. Typically, a scalper will      stand ready to buy at a fraction below the last transaction price and to      sell at a fraction above, thus creating market liquidity.

**Scalping:** The practice of trading in and out of the market on very      small price fluctuations. A person who engages in this practice is known      as a *scalper.*

**Security Deposit:***See **Margin.***

**Seller's Call:***See **Call.***

**Seller's Market:** A condition of the market in which there is a      scarcity of goods available and hence sellers can obtain better      conditions of sale or higher prices. *Also see **Buyer's      Market.***

**Seller's Option:** The right of a seller to select, within the      limits prescribed by a contract, the quality of the commodity delivered      and the time and place of delivery.

**Selling Hedge (or Short Hedge):** Selling futures contracts to      protect against possible decreased prices of commodities. *Also see **Hedging.***

**Series (of Options):** Options of the same type (i.e., either puts      or calls, but not both), covering the same underlying futures contract or      physical commodity, having the same strike price and expiration      date.

**Settlement:** The act of fulfilling the delivery requirements of the      futures contract.

**Settlement or Settling Price:** The daily price at which the      clearing house clears all trades and settles all accounts between      clearing members of each contract month. Settlement prices are used to      determine both margin calls and invoice prices for deliveries. The term      also refers to a price established by the exchange to even up positions      which may not be able to be liquidated in regular trading.

**Sharpe Ratio:** A measurement of trading performance calculated as      the average return divided by the variance of those returns; named after      William P. Sharpe.

**Shipping Certificate:** A negotiable instrument used by several      futures exchanges as the futures delivery instrument for several      commodities (e.g., soybean meal, plywood, and white wheat). The shipping      certificate is issued by exchange-approved facilities and represents a      commitment by the facility to deliver the commodity to the holder of the      certificate under the terms specified therein. Unlike an issuer of a      warehouse receipt who has physical product in store, the issuer of a      shipping certificate may honor its obligation from current production or      through-put as well as from inventories.

**Shock Absorber:** A temporary restriction in the trading of stock      index futures which becomes effective following a significant intraday      decrease in stock index futures prices. Designed to provide an adjustment      period to digest new market information, the restriction bars trading      below a specified price level. *Shock Absorbers* are generally      market specific and at tighter levels than circuit breakers.

**Short:** (1) The selling side of an open futures contract; (2) a      trader whose net position in the futures market shows an excess of open      sales over open purchases. *See **Long.***

**Short Covering:***See **Cover.***

**Short Hedge:***See **Selling Hedge.***

**Short Selling:** Selling a futures contract with the idea of      delivering on it or offsetting it at a later date.

**Short Squeeze:***See **Squeeze.***

**Short the Basis:** The purchase of futures as a hedge against a      commitment to sell in the cash or spot markets. *See **Hedging.***

**Small Traders:** Traders who hold or control positions in futures or      options that are below the reporting level specified by the exchange or      the CFTC.

**Soft:** A description of a price which is gradually weakening. Also      refers to commodities such as sugar, cocoa, and coffee.

**Soften:** The process of a slowly declining market price.

**Sold-Out-Market:** When liquidation of a weakly-held position has      been completed, and offerings become scarce, the market is said to be *sold out.*

**Specialist System:** A type of trading commonly used for the      exchange trading of securities in which one individual or firm acts as a      market-maker in a particular security, with the obligation to see that      trading in that security is fair and orderly by offsetting temporary      imbalances in supply and demand by trading for his own account. *Also      see **Board Broker System** and **Free Crowd System.***

**Speculative Bubble:** A rapid, but usually short-lived, run-up in      prices caused by excessive buying which is unrelated to any of the basic,      underlying factors affecting the supply or demand for the commodity.      Speculative bubbles are usually associated with a "bandwagon"      effect in which speculators rush to buy the commodity (in the case of      futures, "to take positions") before the price trend ends, and      an even greater rush to sell the commodity (unwind positions) when prices      reverse.

**Speculative Limit:***See **Position Limit.***

**Speculative Position Limit:***See **Position      Limit.***

**Speculator:** In commodity futures, an individual who does not      hedge, but who trades with the objective of achieving profits through the      successful anticipation of price movements.

**Split Close:** Term which refers to price differences in      transactions at the close of any market session.

**Spot:** Market of immediate delivery of the product and immediate      payment. Also refers to a maturing delivery month of a futures      contract.

**Spot Commodity:** (1) The actual commodity as distinguished from a      futures contract: (2) sometimes used to refer to cash commodities      available for immediate delivery. *Also see **Actuals** or **Cash      Commodity.***

**Spot Month:***See **Current Delivery Month.***

**Spot Price:** The price at which a physical commodity for immediate      delivery is selling at a given time and place. *See **Cash      Price.***

**Spread (or Straddle):** The purchase of one futures delivery month      against the sale of another futures delivery month of the same commodity;      the purchase of one delivery month of one commodity against the sale of      that same delivery month of a different commodity; or the purchase of one      commodity in one market against the sale of the commodity in another      market, to take advantage of a profit from a change in price      relationships. *See also **Arbitrage, Switch***. The term spread      is also used to refer to the difference between the price of a futures      month and the price of another month of the same commodity. A spread can      also apply to options.

**Squeeze:** A market situation in which the lack of supplies tends to      force shorts to cover their positions by offset at higher prices.

**SRO:***See **Designated Self-Regulatory      Organization.***

**Standby Commitment:** A put option in Ginnie Mae trading which gives      the holder the right, but not the obligation, to make delivery.

**Stop-Close-Only Order:** A stop order which can only be executed, if      possible, during the closing period of the market. *See also **Market-on-Close Order.***

**Stop Limit Order:** A stop limit order is an order that goes into      force as soon as there is a trade at the specified price. The order,      however, can only be filled at the stop limit price or better.

**Stop Order:** This is 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 **Stop Loss Order.***

**Straddle:***See **Spread.***

**Strangle:** An option position consisting of the purchase or sale of      put and call options having the same expiration but different strike      prices.

**Street Book:** A daily record kept by futures commission merchants      and clearing members showing details of each futures transaction,      including date, price, quantity, market, commodity, future, and the      person for whom the trade was made.

**Striking Price (Exercise or Contract Price):** The price, specified      in the option contract, at which the underlying futures contract or      commodity will move from seller to buyer.

**STRIPS:*****S*eparate Trading of Registered Interest and      Principal Securities.** A book-entry system operated by the Federal      Reserve permitting separate trading and ownership of the principal and      coupon portions of selected Treasury securities. It allows the creation      of zero coupon Treasury securities from designated whole bonds.

**Strong Hands:** When used in connection with delivery of commodities      on futures contracts, the term usually means that the party receiving the      delivery notice probably will take delivery and retain ownership of the      commodity; when used in connection with futures positions, the term      usually means positions held by trade interests or well-financed      speculators.

**Support:** In technical analysis, a price area where new buying is      likely to come in and stem any decline. *Also see **Resistance.***

**Swap:** In general, the exchange of one asset or liability for a      similar asset or liability for the purpose of lengthening or shortening      maturities, or raising or lowering coupon rates, to maximize revenue or      minimize financing costs. In securities, this may entail selling one      issue and buying another in foreign currency, it may entail buying a      currency on the spot market and simultaneously selling it forward. Swaps      may also involve exchanging income flows; for example, exchanging the      fixed rate coupon stream of a bond for a variable rate payment stream, or      vice versa, while not swapping the principal component of the bond.

**Swaption:** An option to enter into a swap -- i.e., the right, but      not the obligation, to enter into a specified type of swap at a specified      future date.

**Switch:** Offsetting a position in one delivery month of a commodity      and simultaneous initiation of a similar position in another delivery      month of the same commodity, a tactic referred to as "rolling      forward." *See **Arbitrage.***

**Synthetic Futures:** A position created by combining call and put      options. A synthetic long futures position is created by combining a long      call option and a short put option for the same expiration date and the      same strike price. A synthetic short futures is created by combining a      long put and a short call with the same expiration date and the same      strike price.

**Systemic Risk:** Market risk due to price fluctuations which cannot      be eliminated by diversification.

**Taker:** The buyer of an option contract.

**T-Bond:***See **Treasury Bond.***

**Technical Analysis:** An approach to forecasting commodity prices      which examines patterns of price change, rates of change, and changes in      volume of trading and open interest, without regard to underlying      fundamental market factors.

**Ted Spread:** The difference between the price of the three-month      U.S. Treasury bill futures contract and the price of the three-month      Eurodollar time deposit futures contract with the same expiration      month.

**Tender:** To give notice to the clearinghouse of the intention to      initiate delivery of the physical commodity in satisfaction of the      futures contract. *Also see **Retender.***

**Tenderable Grades:***See **Contract Grades.***

**Terminal Elevator:** An elevator located at a point of greatest      accumulation in the movement of agricultural products which stores the      commodity or moves it to processors.

**Terminal Market:** Usually synonymous with commodity exchange or      futures market, specifically in the United Kingdom.

**Theta:** The derivative of the option price equation with respect to      the remaining time to expiration of the option. A measure of the      sensitivity of the value of the option to the passage of time.

**Tick:** Refers to a minimum change in price up or down. *See **Point.***

**Time-of-Day Order:** This is an order which is to be executed at a      given minute in the session. For example, "Sell 10 March corn at      12:30 p.m."

**Time Spread:** The selling of a nearby option and buying of a more      deferred option with the same strike price.

**Time Value:** That portion of an option's premium that exceeds      the *intrinsic value.* The *time value* of an option reflects      the probability that the option will move *into-the-money.*      Therefore, the longer the time remaining until expiration of the option,      the greater its time value. *Also called **Extrinsic      Value.***

**To-Arrive Contract:** A transaction providing for subsequent      delivery within a stipulated time limit of a specific grade of a      commodity.

**Trade Option:** A commodity option transaction in which the taker is      reasonably believed by the writer to be engaged in business involving use      of that commodity or a related commodity.

**Trader:** (1) A merchant involved in cash commodities; (2) a      professional speculator who trades for his own account.

**Transaction:** The entry or liquidation of a trade.

**Transfer Trades:** Entries made upon the books of futures commission      merchants for the purpose of: (1) transferring existing trades from one      account to another within the same office where no change in ownership is      involved; (2) transferring existing trades from the books of one      commission merchant to the books of another commission merchant where no      change in ownership is involved. *Also called **Ex-Pit      Transactions.***

**Transferable Option (or Contract):** A contract which permits a      position in the option market to be offset by a transaction on the      opposite side of the market in the same contract.

**Transfer Notice:** A term used on some exchanges to describe a      notice of delivery. *See **Retender.***

**Treasury Bills:** Short-term U.S. government obligations, generally      issued with 13, 26 or 52-week maturities.

**Treasury Bonds (or T-Bond):** Long-term obligations of the U.S.      government which pay interest semiannually until they mature or are      called, at which time the principal and the final interest payment is      paid to the investor.

**Treasury Notes:** Same as Treasury Bonds except that Treasury Notes      are medium-term and not callable.

**Trend:** The general direction, either upward or downward, in which      prices have been moving.

**Trendline:** In charting, a line drawn across the bottom or top of a      price chart indicating the direction or trend of price movement. If up,      the trendline is called *bullish*; if down, it is called *bearish.*

**Underlying Commodity:** The commodity or futures contract on which a      commodity option is based, and which must be accepted or delivered if the      option is exercised. Also, the cash commodity underlying a futures      contract.

**Variable Price Limit:** A price limit schedule, determined by an      exchange, that permits variations above or below the normally allowable      price movement for any one trading day.

**Variation Margin:** Payment made on a daily or intraday basis by a      clearing member to the clearing organization based on adverse price      movement in positions carried by the clearing member, calculated      separately for customer and proprietary positions.

**Vault Receipt:** A document indicating ownership of a commodity      stored in a bank or other depository and frequently used as a delivery      instrument in precious metal futures contracts.

**Visible Supply:** Usually refers to supplies of a commodity in      licensed warehouses. Often includes afloats and all other supplies      "in sight" in producing areas.

**Volatility Quote Trading:** Refers to the quoting of bids and offers      on option contracts in terms of their implied volatilities rather than as      prices.

**Volume of Trade:** The number of contracts traded during a specified      period of time. It may be quoted as the number of contracts traded or in      the total of physical units, such as bales or bushels, pounds or      dozens.

**Warehouse Receipt:** A document certifying possession of a commodity      in a licensed warehouse that is recognized for delivery purposes by a      commodity futures exchange.

**Warrant:** An issuer-based product that gives the buyer the right,      but not the obligation, to buy (in the case of a call) or to sell (in the      case of a put) a stock or a commodity at a set price during a specified      period.

**Warrant or Warehouse Receipt for Metals:** Certificate of physical      deposit, which gives title to physical metal in an exchange approved      warehouse.

**Wash Sale:** Transactions that give the appearance of purchases and      sales but which are initiated without the intent to make a bona fide      transaction and which generally do not result in any actual change in      ownership. Such sales are prohibited by the Commodity Exchange Act.

**Wash Trading:** Entering into, or purporting to enter into,      transactions to give the appearance that purchases and sales have been      made, without resulting in a change in the trader's market      position.

**Weak Hands:** When used in connection with delivery of commodities      on futures contracts, the terms usually means that the party probably      does not intend to retain ownership of the commodity; when used in      connection with futures positions, the term usually means positions held      by small speculators.

**Wild Card Option:** Refers to a provision of any physical delivery      *Treasury Bond* or *Note* futures contract which permits shorts      to wait until as late as 8:00 p.m. on any notice day to announce their      intention to deliver at invoice prices that are fixed at 2:00 p.m., the      close of futures trading, on that day.

**Winter Wheat:** Wheat that is planted in the fall, lies dormant      during the winter, and is harvested beginning about May of the next      year.

**Writer:** The issuer, grantor, or maker of an option contract.

**Yield Curve:** A graphic representation of market yield for a fixed      income security plotted against the maturity of the security.

**Commodity Futures Trading Commission****Federal Regulatory Agency****For Futures Trading**

**Commodity Futures Trading Commission**

      Three Lafayette Centre       1155 21st Street, N.W.       Washington, D.C. 20581    

      Phone: (202) 418-5000       Fax: (202) 418-5525    

**Eastern Region Headquarters**       One World Trade Center - Suite 3747       New York, NY 10048    

      Phone: (212) 466-2061       Fax: (212) 466-5723    

**Central Region Headquarters**       300 South Riverside Plaza       Suite 1600 North       Chicago, IL 60606    

      Phone: (312) 353-5990       Fax: (312) 353-2993**Southwestern Region Headquarters**       4900 Main Street - Suite 721       Kansas City, MO 64112    

      Phone: (816) 931-7600       Fax: (816) 931-9643**Minneapolis Office - Southwestern Region**       510 Grain Exchange Building       Minneapolis, MN 55415    

      Phone: (612) 370-3255       Fax: (612) 370-3257**Western Region Headquarters**       Murdock Plaza       10900 Wilshire Boulevard - Suite 400       Los Angeles, CA 90024    

      Phone: (310) 235-6783       Fax: (310) 235-6782

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**Updated February 1, 2001**