Term

Definition

Source

Abandon

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

NFA

ACC

American Commodities Corporation.

NFA

Accommodation Trading

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

NFA

Action Type

An Action Type is a uniform category of rule violation, such as floor recordkeeping violations, sales practice violations and trade practice violations.

NFA

Actuals

The physical or cash commodity, as distinguished from a commodity futures contract.

NFA

Adjudication

The determination of a controversy and a pronouncement of a judgment based on evidence presented. Implies a final judgment of the court or other body deciding the matter, as opposed to a proceeding in which the merits of the cause of action were not reached.

NFA

Adjudication Committee

A committee empowered by a self-regulatory organization for the purpose of determining an issue of fact and reaching a decision on the basis of evidence presented.

NFA

Adjustments

Certain events such as a stock split or a stock dividend (e.g., a 3-for-2 stock split). An adjusted option may cover more than the usual one hundred shares. For example, after a 3-for-2 stock split, the adjusted option will represent 150 shares. For such options, the premium must be multiplied by a corresponding factor. Example: buying 1 call (covering 150 shares) at 4 would cost $600. See also Strike price interval

Administrative Hearing

A proceeding wherein evidence is taken for the purpose of determining an issue of fact and reaching a decision on the basis of that evidence. An Administrative Hearing may take place outside the judicial process, before officials who have been granted judicial authority expressly for the purpose of conducting such hearings.

NFA

Administrative Law

Law created by administrative agencies by way of rules, regulations, orders and decisions.

NFA

Administrative Law Judge (ALJ)

The presiding officer of an administrative hearing. An ALJ does not sit as a law judge, and his power is essentially one of recommendation. In the federal system, the ALJ is empowered to administer oaths and affirmations, issue subpoenas, rule on evidence presented, take depositions, regulate the course of the hearing and make or recommend decisions.

NFA

Affidavit

A written statement made under oath.

NFA

Affirm

The act of an appellate body upholding a decision of a trial court, an adjudication committee or a lower appellate court is called affirming the decision.

NFA

Against Actuals

A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as Exchange for Physicals or Versus Cash.

NFA

Agency Bond

A debt security issued by a government-sponsored enterprise such as Fannie Mae or Freddie Mac, designed to resemble a US Treasury bond.

CFTC

Agency Note

A debt security issued by a government-sponsored enterprise such as Fannie Mae or Freddie Mac, designed to resemble a US Treasury note.

CFTC

Aggregation

The policy under which all futures positions owned or controlled by one trader or group of traders are combined to determine reporting status and speculative limit compliance.

NFA

Agricultural Trade-Option Merchant (ATM)

An individual or organization which solicits or offers trade options for sale. Must be registered with the Commodity Futures Trading Commission.

NFA

Aid and Abet

To actively, knowingly, intentionally, or purposefully facilitate or assist another individual in the commission or attempted commission of a crime.

NFA

All-or-none order (AON)

A type of option order which requires that the order be executed completely or not at all. An AON order may be either a day order or a GTC (good til cancel) order.

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.

NFA

American Option

An option that can be exercised at any time prior to or on the expiration date

CFTC

AMEX / ASE

American Stock Exchange.

Answer

A written response to a demand or a third party claim. A written submission filed by a respondent named in a Complaint which answers each allegation in the Complaint by admitting, denying or averring lack of sufficient knowledge to admit or deny the allegation.

NFA

Appeal

A request to an appellate body to review a lower court's or an adjudication committee's decision.

NFA

Appeals Committee

A committee empowered by a self-regulatory organization for the purpose of hearing and deciding appeals from and reviews of decisions by hearing committees.

NFA

Appellant

The party bringing the appeal.

NFA

Appellate

About appeals; an appellate court has the power to review the judgment of a lower court or tribunal.

NFA

Appellee

The party against whom an appeal is brought.

NFA

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.

NFA

Arbitrage

The simultaneous purchase and sale of similar commodities in different markets to take advantage of a price discrepancy.

NFA

Arbitration

The process of settling disputes between parties. NFA's arbitration program provides a forum for resolving futures-related disputes between members or between members and customers.

NFA

Arbitration Panel

The arbitrators (one or three) appointed by NFA to hear and decide disputes brought to NFA for arbitration.

NFA

Arbitrator

A person chosen to decide disputes between parties in an arbitration proceeding.

NFA

Asian Option

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

NFA

Ask

Also called Offer. Indicates a willingness to sell a futures contract at a given price. See also Bid.

NFA

Ask / ask price

The price at which a seller is offering to sell an option or a stock. See also Assignment

Assigment

Designation by a clearing organization of an option writer who will be required to buy (in the case of a put) or sell (in the case of a call) the underlying futures contract or security when an option has been exercised, especially if it has been exercised early.

CFTC

Assignable Contract

One which allows the holder to convey his rights to a third party. Exchange-traded commodities are not assignable.

NFA

Assigned (an exercise)

Received notification of an assignment by The Options Clearing Corporation. See also Assignment

Associate Member

A person who is associated with an NFA Member within the meaning of the term associated and who is required to be registered as an associated person with the Commodity Futures Trading Commission.

NFA

Associate Responsibility Action (ARA)

An action whereby an NFA Associate Member may be suspended from membership or may otherwise be directed to take remedial action when the President of NFA, with the concurrence of the Executive Committee, has reason to believe that the action is necessary to protect the commodity futures markets, customers or other Members or Associates of NFA. This may be a summary action.

NFA

Associated Person (AP)

An individual who solicits orders, customers or customer funds on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor or a commodity pool operator and who is registered with the CFTC.

NFA

At the Market

An order to buy or sell a futures or options contract at whatever price is obtainable when the order reaches the trading floor.

NFA

At the Money

An option with a strike price which is equal to, or approximately equal to, the current market price of the underlying futures contract.

NFA

Auction Rate Secutiry

A debt security, typically issued by a municipality, in which the yield is reset on each payment date via a Dutch auction.

CFTC

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.

NFA

Automactic Exercise

A provision in an option contract specifying that it will be exercised automatically on the expiration date if it is in-the-money by a specified amount, absent instructions to the contrary.

CFTC

Averaging down

Buying more of a stock or an option at a lower price than the original purchase so as to reduce the average cost.

Award

The written decision of the arbitrators.

NFA

Term

Definition

Source

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.

NFA

Back Office

The department in a financial institution that processes and deals and handles delivery, settlement and regulatory procedures.

CFTC

Back Pricing

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.

CFTC

Back Spread

A delta-neutral ratio spread in which more options are bought than sold. A back spread will be profitable if volatility increases.

CFTC

Backwardation

A market in which futures prices are progressively lower in the distant delivery months; the opposite of Contango.

NFA

Bad Faith

Dishonesty or fraud in a transaction, such as entering into an agreement with no intention of ever living up to its terms, or knowingly misrepresenting the quality of something that is being bought or sold.

NFA

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.

NFA

Bar Chart

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

NFA

Basis

The difference between the current cash price of a commodity and the futures price of the same commodity.

NFA

Basis Grade

The grade of a commodity used as the standard or par grade of a futures contract.

NFA

Basis Point

The measurement of a change in the yield of a debt security. One basis point equals 1/100 of a percent.

NFA

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)

NFA

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.

NFA

Basis Swap

A swap whose cash settlement price is calculated based on the basis between a futures contract and the spot price of the underlying commodity or a closely related commodity on a specified date.

CFTC

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.

NFA

Bear Market

A market in which prices are declining.

NFA

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.

NFA

Bear spread (call)

The simultaneous writing of one call option with a lower strike price and the purchase of another call option with a higher strike price. Example: writing 1 XYZ May 60 call, and buying 1 XYZ May 65 call.

Bear spread (put)

The simultaneous purchase of one put option with a higher strike price and the writing of another put option with a lower strike price. Example: buying 1 XYZ May 60 put, and writing 1 XYZ May 55 put.

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 with different strike prices. For example, if call options are spread, the purchased option must have a higher exercise price than the option that is sold.

NFA

Bearish

An adjective describing the opinion that a stock, or a market in general, will decline in price -- a negative or pessimistic outlook.

Beta

A measure of the variability of rate of return or value of a stock portfolio compared to that of the overall market.

NFA

Bid

An expression indicating a desire to buy a commodity at a given price; the opposite of Offer.

NFA

Bid-Ask-Spread

The difference between the bid price and the ask or offer price. .

CFTC

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.

NFA

Blackboard Trading

The practice, no longer used, of buying and selling commodities by posting prices on a blackboard on a wall of a commodity exchange. .

CFTC

Black-Scholes formula

The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

Block Order

A futures or option order placed at the same time for more than one account.

NFA

Block Trade

A large transaction that is negotiated off a trading floor or facility and then executed on an exchange’s trading facility, as permitted under exchange rules .

CFTC

Board of Trade Clearing Corporation (BOTCC)

An independent corporation that settles all trades made at the Chicago Board of Trade. The BOTCC acts as a guarantor for all trades cleared by it, reconciles all clearing member firm accounts each day to ensure that all gains have been credited and all losses have been collected, and sets and adjusts clearing member firm margins for changing market conditions. Also referred to as a Clearing Corporation

NFA

Board 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.

NFA

Boiler Room

A 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.

NFA

Book Entry Securities

Electronically recorded securities that include each creditor's name, address, Social Security or tax identification number, and dollar amount loaned, (i.e., no certificates are issued to bond holders, instead the transfer agent electronically credits interest payments to each creditor's bank account on a designated date).

NFA

Book Transfer

A series of accounting or bookkeeping entries used to settle a series of cash market transactions .

CFTC

Booking the Basis

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

NFA

BOTCC

Board of Trade Clearing Corporation.

NFA

BOX

Boston Options Exchange Group L.L.C.

Box spread

A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call; simultaneously buying 1 XYZ May 65 put, and writing 1 May 60 put.

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.

NFA

Branch Office

Any location, other than the main business address of a registrant, at which the registrant employs persons engaged in activities requiring registration as an associated person.

NFA

Branch Office Manager

The person at a branch office designated to supervise the activities of that office.

NFA

Break

A rapid and sharp price decline.

NFA

Break Even Point

The trading profit that a commodity pool must realize in the first year of a participant's investment to equal all fees and expenses such that such participant will recoup its initial investment.

NFA

Brief

A written document that outlines a party's legal arguments in a case.

NFA

Broad-Based Security Index

Any index of securities that does not meet the legal definition of Narrow-Based Security Index

CFTC

Broker

A person paid a fee or commission for acting as an agent in making contracts, sales or purchases. In futures trading, the term may refer to (1) a floor broker--a person who actually executes orders on the trading floor of an exchange; or (2) an account executive or associated person--the person who deals with customers in the offices of a futures commission merchant or introducing broker; or (3) a futures commission merchant or introducing broker.

NFA

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.

NFA

Brokerage Fee

Also known as a Commission Fee. A fee charged by a broker for executing a transaction.

NFA

Brokerage House

Also known as a Futures Commission Merchant. An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as Commission House or Wire House.

NFA

Broker-Dealer

Firms that act as securities dealers or brokers, or perform both functions. A broker is an individual or firm who acts as an intermediary between a buyer and seller, usually charging a commission. A dealer is any person or company in the business of buying and selling securities for his or her own account, through a broker or otherwise.

NFA

BTX

Brokertec Futures Exchange LLC

NFA

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.

NFA

Bucketing

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

NFA

Bull

One who expects a rise in prices. The opposite of Bear. A news item is considered bullish if it expected to raise prices.

NFA

Bull Market

A market in which prices are rising.

NFA

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.

NFA

Bull spread (call)

The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call.

Bull spread (put)

The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price. Example: writing 1 XYZ May 60 put, and buying 1 XYZ May 55 put.

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 with 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.

NFA

Bullion

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

CFTC

Bullish

An adjective describing the opinion that a stock, or the market in general, will rise in price -- a positive or optimistic outlook.

Bunched Order

A discretionary order entered on behalf of multiple customers.

CFTC

Buoyant

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

CFTC

Business Conduct Committee

A committee empowered by a Self-Regulatory Organization to supervise the business conduct of the organization's members and, at some self-regulatory organizations, conduct investigations. A Business Conduct Committee may also issue formal Complaints, review settlement offers, conduct hearings and issue decisions.

NFA

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.

NFA

Buy On close

To buy at the end of the trading session within the closing price range.

CFTC

Buy On Opening

To buy at the beginning of a trading session within the open price range. .

CFTC

Buy on Close

To buy at the end of the trading session within the closing price range.

NFA

Buy on Opening

To buy at the beginning of a trading session within the open price range.

NFA

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.

NFA

Buyer's Call

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 futures contract for the account of the seller or telling the seller when he wishes to fix the price..

CFTC

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.

NFA

Buying Hedge

Hedging transaction in which futures contracts are bought to protect against possible increases in the cost of commodities.

NFA

Buy-write

A covered call position in which stock is purchased and an equivalent number of calls written at the same time. This position may be transacted as a combined order, with both sides (buying stock and writing calls) being executed simultaneously. Example: buying 500 shares XYZ stock, and writing 5 XYZ May 60 calls. See also Covered call / covered call writing

Term

Definition

Source

C&F

"Cost and Freight paid to a point of destination and included in the price quoted

CFTC

C.I.F

Cost, Insurance and Freight paid to a point of destination and included in the price quoted.

CFTC

Cabinet Trade

A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick.

NFA

CACE

Citrus Associates of the Cotton Exchange

NFA

Calendar Spread

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

NFA

Call

(1) An option contract giving the buyer the right but not the obligation to purchase a commodity or other asset or to enter into a long futures position; (2) a period at the opening and the close of some futures markets in which the price for each futures contract is established by auction; or (3) the requirement that a financial instrument be returned to the issuer prior to maturity, with principal and accrued interest paid off upon return.

NFA

Call Around Market

A market, commonly used for options on futures on European exchanges, in which brokers contact each other outside of the exchange trading facility to arrange block trades.

CFTC

Call Cotton

Cotton bought or sold on call

CFTC

Call Option

The buyer of a call option acquires the right, but not the obligation, to purchase a particular futures contract at a stated price on or before a particular date.

NFA

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.

NFA

Called

Another term for exercised when an option is a call. In the case of an option on a physical, the writer of a call must deliver the indicated underlying commodity when the option is exercised or called. In the case of an option on a futures contract, a futures position will be created that will require margin, unless the writer of the call has an offsetting position.

CFTC

Capital Gain

The profit made from the sale of a capital asset, such as real estate, a house, jewelry or stocks and bonds.

NFA

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.

NFA

Carry / carrying cost

The interest expense on money borrowed to finance a securities position.

Carrying Broker

A member of a futures exchange, usually a clearinghouse member, through whom another broker or customer chooses to clear all or some trades.

NFA

Carrying Charge

The cost of storing a physical commodity, such as grain or metals, over a period of time. Includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument.

NFA

Carryover

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

NFA

Cash Commodity

The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also known as Actuals.

NFA

Cash Contract

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

NFA

Cash Forward Sale

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.

NFA

Cash Market

A place where people buy and sell the actual commodities. Also known as Forward Cash Contract.

NFA

Cash Price

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

NFA

Cash Settlement

A method of settling certain futures or options contracts whereby the seller pays the buyer the cash value of the commodity traded according to a procedure specified in the contract.

NFA

CBOE

The Chicago Board Options Exchange.

CBOT

Chicago Board of Trade.

NFA

CEI

Commodity Exchange, Inc. (also known as COMEX).

NFA

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 an exchange. In grain, called "stocks in deliverable position.

CFTC

CFFE

Cantor Financial Futures Exchange

NFA

CFTC Administrative Action

An action taken by the Commodity Futures Trading Commission to enforce the provisions of the Commodity Exchange Act and Regulations.

NFA

CFTC Injunctive Action

An action brought by the Commodity Futures Trading Commission in federal court to obtain an order requiring a party to refrain from doing or continuing to do a particular act or activity.

NFA

Changer

Formerly, a clearing member of both the Mid-America Commodity Exchange (MidAm) and another futures exchange who, for a fee, would assume the opposite side of a transaction on MidAm by taking a spread position between MidAm and the other futures exchange that traded an identical, but larger, contract. Through this service, the changer provided liquidity for MidAm and an economical mechanism for arbitrage between the two markets. MidAm was a subsidiary of the Chicago Board of Trade (CBOT). MidAm was closed by the CBOT in 2003 after all MidAm contracts were delisted on MidAm and relisted on the CBOT as Mini contracts. The CBOT still uses changers for former MidAm contracts that are traded on an open outcry platform.

CFTC

Charting

The use of graphs and charts in the technical analysis of futures markets to plot price movements, volume, open interest or other statistical indicators of price movement.

NFA

Cheapest to Deliver

Usually refers to the selection of bonds deliverable against an expiring bond futures contract.

NFA

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 call option.

NFA

Churning

Excessive trading that results in the broker deriving a profit from commissions while disregarding the best interests of the customers.

NFA

Circuit Breaker

A system of trading halts and price limits on equities and derivatives markets designed to provide a cooling-off period during large, intraday market declines.

NFA

Civil Action

An action maintained to protect a private, civil right, or to compel a civil remedy, as distinguished from a criminal prosecution.

NFA

Civil Monetary Penalty

Fines imposed by the Commodity Futures Trading Commission as a sanction for wrongdoing.

NFA

Claim

A demand for money or other relief.

NFA

Claimant

A party who asserts a right to money or property.

NFA

Class of options

A term referring to all options of the same type -- either calls or puts -- covering the same underlying stock.

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.

NFA

Clearing Association

An entity through which futures and other derivative transactions are cleared and settled. It is also charged with assuring the proper conduct of each contract’s delivery procedures and the adequate financing of trading. A clearing organization may be a division of a particular exchange, an adjunct or affiliate thereof, or a freestanding entity. Also called a clearing house, multilateral clearing organization, or clearing association..

NFA

Clearing House

An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reporting trade data.

NFA

Clearing Margin

Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers.

NFA

Clearing Member

A member of an exchange clearing house. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

NFA

Clearing Procedures Action Type

A violation arising from the failure to abide by clearing procedures.

NFA

Close

The period at the end of the trading session, officially designated by the exchange, during which all transactions are considered made "at the close."

NFA

Closing Price

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."

NFA

Closing Range

A high and low range of prices at which futures transactions took place during the close of the market.

NFA

Closing transaction

A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.

Closing-Out

Liquidating an existing long or short futures or option position with an equal and opposite transaction. Also known as Offset.

CFTC

CME

Chicago Mercantile Exchange.

NFA

Co Respondent

Other individuals or firms named in the disciplinary, reparation or arbitration action are referred to as co-respondents in the action.

NFA

Collar

A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation. See also Fence

Collateral

Securities against which loans are made. If the value of the securities (relative to the loan) declines to an unacceptable level, this triggers a margin call. As such, the investor is asked to post additional collateral or the securities are sold to repay the loan.

COM Membership

A Chicago Board of Trade membership that allows and individual to trade contracts listed in the commodity options market category.

NFA

Combination

Puts and calls held either long or short with different strike prices and/or expirations. Types of combinations include straddles and strangles.

NFA

COMEX

Commodity Exchange, Inc. (also known as CEI).

NFA

Commercial

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

NFA

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.

NFA

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 paper market generally is dominated by large corporations with impeccable credit ratings.

NFA

Commission

A fee charged by a broker to a customer for performance of a specific duty, such as the buying or selling of futures contracts.

NFA

Commitments

The sum of all long or short futures contracts in one delivery month to one market that have been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery.

NFA

Commitments of Trade Report

A weekly report from the CFTC providing a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Open interest is broken down by aggregate commercial, non-commercial, and non-reportable holdings.

CFTC

Commodity

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

NFA

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.

NFA

Commodity Exchange Act

The federal act that provides for federal regulation of futures trading.

NFA

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.

NFA

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.

CFTC

Commodity Futures Modernization Act

The Commodity Futures Modernization Act of 2000 (CFMA), Pub. L. No. 106-554, 114 Stat. 2763, reauthorized the Commodity Futures Trading Commission for five years and overhauled the Commodity Exchange Act to create a flexible structure for the regulation of futures and options trading. Significantly, the CFMA codified an agreement between the CFTC and the Securities and Exchange Commission to repeal the 18-year-old ban on the trading of single stock futures. .

CFTC

Commodity Futures Trading Commission (CFTC)

The 1974-established federal regulatory agency that administers the Commodity Exchange Act. The federal oversight agency which monitors the futures and options on futures markets to detect and prevent price distortion and market manipulation and to protect the rights of customers who use the markets for either commercial or investment purposes.

NFA

Commodity Option

See Option Contract, Put Option and Call Option.

NFA

Commodity Pool

An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts.

NFA

Commodity Pool Operator (CPO)

An individual or organization which operates or solicits funds for a pool, that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. Generally required to be registered with the Commodity Futures Trading Commission.

NFA

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, e.g., grains or livestock

CFTC

Commodity Swap

A swap in which the payout to at least one counterparty is based on the price of a commodity or the level of a commodity index.

CFTC

Commodity Trading Advisor (CTA)

An individual or organization that, for compensation or profit, directly or indirectly advises others as to the value of or the advisability of buying or selling futures or options contracts. Providing advice indirectly includes exercising trading authority over a customer's account. Registration with the Commodity Futures Trading Commission is generally required.

NFA

Commodity-Linked Bond

A bond in which payment to the investor is dependent to a certain extent on the price level of a commodity, such as crude oil, gold, or silver, at maturity.

CFTC

Compensatory Damages

An amount intended to cover actual losses.

NFA

Complaint

Formal, written charges brought by a regulatory or self-regulatory organization which set forth the rules or requirements alleged to have been violated and describe each act or omission that constituted the alleged violations. Also, the initial document filed in a court to initiate a civil action.

NFA

Computerized Trading Reconstruction System

A Chicago Board of Trade computerized surveillance program that pinpoints in any trade, the traders, the contract, the quantity, the price and the time of execution to the nearest minute.

NFA

Condor spread

A strategy involving four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike. This spread is also referred to as a 'flat-top butterfly.'

Confirmation Statement

A statement sent by a futures commission merchant to a customer when a futures or options position has been initiated. The statement shows the number of contracts bought or sold and the prices at which the contracts were bought or sold. Sometimes combined with a purchase and sale statement.

NFA

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.

NFA

Consent Order

Generally, any order to which all parties agree.

NFA

Contango

A market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery months; opposite of Backwardation.

NFA

Contingency order

An order to execute a transaction in one security that depends on the price of another security. An example might be: 'Sell the XYZ May 60 call at 2, contingent upon XYZ stock being at or below $59 1/2.'

Contract

A term of reference describing a unit of trading for a commodity future or option.

NFA

Contract Grades

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

NFA

Contract Market

A board of trade designated by the Commodity Futures Trading Commission to trade futures or option contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded.

NFA

Contract Month

The month in which delivery is to be made in accordance with a futures contract.

NFA

Contract size

The amount of the underlying asset covered by the option contract. This is 100 shares for one equity option unless adjusted for a special event, such as a stock split or a stock dividend, or otherwise special by the listing exchange.

Contract Unit

The actual amount of a commodity represented in a contract.

NFA

Contributor

The Commodity Futures Trading Commission, National Futures Association and any U.S. futures exchange which includes its disciplinary actions in NFA's BASIC system.

NFA

Controlled Account

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

NFA

Convergence

The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month.

NFA

Conversion

A position created by selling a call option, buying a put option, and buying the underlying instrument (for example, a futures contract), where the options have the same strike price and the same expiration.

NFA

Conversion Factor

A factor used to equate the price of T-bond and T-note futures contracts with the various cash T-bonds and T-notes eligible for delivery. This factor is based on the relationship of the cash-instrument coupon to the required eight percent deliverable grade of a futures contract as well as taking into account the cash instrument's maturity or call.

NFA

Core Principle

A provision of the Commodity Exchange Act with which a Contract Market, Derivatives Transaction Execution Facility, or Derivatives Clearing Organization must comply on an ongoing basis. There are 18 Core Principles for Contract Markets, nine Core Principles for DTEFs, and 14 Core Principles for DCOs.

CFTC

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.

NFA

Correction

A temporary decline in prices during a bull market that partially reverses the previous rally.

CFTC

Cost of tender

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

CFTC

Counterclaim

A claim by a respondent against a claimant.

NFA

Counterparty

The opposite party in a bilateral agreement, contract, or transaction, such as a swap. In the retail foreign exchange (or forex) context, the party to which a retail customer sends its funds; lawfully, the party must be one of those listed in Section 2(c)(2)(B)(ii)(I)-(VI) of the Commodity Exchange Act.

CFTC

Counterparty Risk

The risk associated with the financial stability of the party entered into contract with. Forward contracts impose upon each party the risk that the counterparty will default, but futures contracts executed on a designated contract market are guaranteed against default by the clearing organization.

CFTC

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.

CFTC

Coupon

A fixed dollar amount of interest payable per annum, stated as a percentage of principal value, usually payable in semiannual installments.

CFTC

Cover

(1) Purchasing futures to offset a short position. Same as Short Covering. See Offset or Liquidate; (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.

NFA

Covered call / covered call writing

An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite

Covered combination

A strategy in which one call and one put with the same expiration, but different strike prices, are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 65 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.

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.

NFA

Covered put / Covered cash-secured put

Cash secured put is an option stategy in which a put option is written against a sufficient amount of cash (or T-bills to pay for the stock purchase if the short option is assigned).

Covered straddle

An option strategy in which one call and one put with the same strike price and expiration are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 60 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.

Cox-Ross-Rubinstein Option Pricing Model

An option pricing model developed by John Cox, Stephen Ross, and Mark Rubinstein that can be adopted to include effects not included in the Black-Scholes Model (e.g., early exercise and price supports).

CFTC

Crack Spread

(1) 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. (2) Calculation showing the theoretical market value of petroleum products that could be obtained from a barrel of crude after the oil is refined or cracked. This does not necessarily represent the refining margin because a barrel of crude yields varying amounts of petroleum products

CFTC

Credit

Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.

Credit Default Option

A put option that makes a payoff in the event the issuer of a specified reference asset defaults. Also called Default Option.

CFTC

Credit Default Swap

A bilateral over-the-counter (OTC) contract in which the seller agrees to make a payment to the buyer in the event of a specified credit event in exchange for a fixed payment or series of fixed payments; the most common type of credit derivative ; also called Credit Swap; similar to Credit Default Option.

CFTC

Credit Derivative

An over-the-counter (OTC) derivative designed to assume or shift credit risk, that is, the risk of a credit event such as a default or bankruptcy of a borrower. For example, a lender might use a credit derivative to hedge the risk that a borrower might default or have its credit rating downgraded. Common credit derivatives include Credit Default Options, Credit Default Swaps, Credit Spread Options, Downgrade Options, and Total Return Swaps.

CFTC

Credit Event

An event such as a debt default or bankruptcy that will affect the payoff on a credit derivative, as defined in the derivative agreement.

CFTC

Credit Rating

A rating determined by a rating agency that indicates the agency’s opinion of the likelihood that a borrower such as a corporation or sovereign nation will be able to repay its debt. The rating agencies include Standard & Poor’s, Fitch, and Moody’s.

CFTC

Credit Spread

The difference between the yield on the debt securities of a particular corporate or sovereign borrower (or a class of borrowers with a specified credit rating) and the yield of similar maturity Treasury debt securities

CFTC

Credit Spread Option

An option whose payoff is based on the credit spread between the debt of a particular borrower and similar maturity Treasury debt.

CFTC

Creditor

A person who is owed money by others.

NFA

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).

NFA

Cross Claim

A claim filed by one respondent against a co-respondent.

NFA

Cross Hedge

Hedging a cash market position in a futures contract for a different, but price-related commodity.

NFA

Cross Margining

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

NFA

Cross Rate

In foreign exchange, the price of one currency in terms of another currency in the market of a third country. For example, the exchange rate between Japanese yen and Euros would be considered a cross rate in the US market.

CFTC

Cross Trading

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

NFA

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.

NFA

CSCE

Coffee, Sugar & Cocoa Exchange, Inc.

NFA

Curb Trading

Trading by telephone or 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.

NFA

Currency Swap

A swap that involves the exchange of one currency (e.g., US dollars) for another (e.g., Japanese yen) on a specified schedule.

CFTC

Current Assets

Cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold during the next 12 months.

NFA

Current Delivery Month

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

NFA

Curvature

A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock. See also Delta

Customer Margin

Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. FCMs are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value.

NFA

Customer Segregated Accounts

A special account used to hold and separate customers' assets from those of the brokerage house or firm.

NFA

Term

Definition

Source

Daily Price Limit

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.

NFA

Daily Trading Limit

The maximum price range set by the exchange each day for a contract.

NFA

Day Order

An order that if not executed expires automatically at the end of the trading session on the day it was entered.

NFA

Day Trader

A speculator who will normally initiate and offset a position within a single trading session.

NFA

Day Trading

Establishing and offsetting the same futures market position within one day.

NFA

Dealer

An individual or firm that acts as a market maker in an instrument such as a security or foreign currency.

CFTC

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.

NFA

Debit

Money paid out from an account either from a withdrawal or a transaction that results in decreasing the cash balance.

Debit spread

A spread strategy that decreases the account's cash balance when it is established. A bull spread with calls and a bear spread with puts are examples of debit spreads.

Decay

A term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by theta.

Decision

A formal, written judgment or verdict.

NFA

Deck

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

NFA

Decorum and Attire Action Type

A violation arising from an individual's demeanor or attire on an exchange floor.

NFA

Default

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

NFA

Deferred Delivery

The distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month.

NFA

Deferred Futures

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

NFA

Deliverable Grades

The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the standard called for by the exchange. Also referred to as Contract Grades.

NFA

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.

NFA

Delivery

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

NFA

Delivery Date

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

NFA

Delivery Instrument

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

NFA

Delivery Month

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

NFA

Delivery Notice

The written notice given by the seller of his intention to make a 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.

NFA

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.

NFA

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.

NFA

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.

NFA

Delta

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

NFA

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 or physical commodity.

NFA

Delta Neutral

Delta Neutral: Refers to a position involving options that is designed to have an overall delta of zero.

CFTC

Delta Value

The expected change in an option's price given a one-unit change in the price of the underlying futures contract.

NFA

Demand

A claim filed by a claimant against a respondent on the form provided by NFA.

NFA

Deposit

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

NFA

Deposition

The pre-trial testimony of a witness given out of court with no judge present. The witness is placed under oath to tell the truth and lawyers for each party may ask questions.

NFA

Derivates clearing Organization

A clearing organization or similar entity that, in respect to a contract (1) enables each party to the contract to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties; (2) arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such contracts; or (3) otherwise provides clearing services or arrangements that mutualize or transfer among participants in the derivatives clearing organization the credit risk arising from such contracts.

CFTC

Derivates Transaction Execution Facility (DTEF)

A board of trade that is registered with the CFTC as a DTEF. A DTEF is subject to fewer regulatory requirements than a Contract Market. To qualify as a DTEF, an exchange can only trade certain commodities (including excluded commodities and other commodities with very high levels of deliverable supply) and generally must exclude retail participants (retail participants may trade on DTEFs through Futures Commission Merchants with adjusted net capital of at least $20 million or registered Commodity Trading Advisors that direct trading for accounts containing total assets of at least $25 million)

CFTC

Derivative

A financial instrument, traded on or off an exchange, the price of which is directly dependent upon the value of one or more of the underlying securities, commodities, other derivative instruments, or any agreed-upon pricing index or arrangement.

NFA

Designated Self Regulatory Organization (DSRO)

When a futures commission merchant (FCM) is a member of more than one Self-Regulatory Organization (SRO), the SROs may decide among themselves which of them will be primarily responsible for enforcing minimum financial and sales practice requirements. With approval, the SRO will be appointed DSRO for the particular FCM.

NFA

Diagonal Spread

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

NFA

Differentials

This discount (premium) allowed for grades or locations of a commodity lower (higher) than the par of basis grade or location specified in the futures contract.

NFA

Directly Crossing Orders

A trader acts as both a buyer and seller for orders on a matched transaction.

NFA

Directly Taking the Other Side

A trader buys and sells his own orders to each other; trading with himself on behalf of others.

NFA

Diretional Trading

Trading strategies designed to speculate on the direction of the underlying market, especially in contrast to volatility trading.

CFTC

Disclosure Document

The document that must be provided to and signed by prospective customers of CPOs and CTAs that describes fees, performance, etc.

NFA

Discount

(1) The amount a price would be reduced to purchase a commodity of lesser grade; (2) sometimes used to refer to the price difference between futures of different delivery months, as in the phrase "July is trading at a discount to May", indicating that the price of the July futures contract is lower than that of May; (3) applied to cash grain prices that are below the futures price.

NFA

Discount Basis

Method of quoting securities where the price is expressed as an annualized discount from maturity value.

NFA

Discount Method

A method of paying interest by issuing a security at less than par and repaying par value at maturity. The difference between the higher par value and the lower purchase price is the interest.

NFA

Discount Rate

The interest rate charged in loans by the Federal Reserve Bank.

NFA

Discretion

Freedom given by an investor through his or her Account Executive to use judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order which gives the Floor Broker 1/8 or 1/4 point from the stated limit price to use his or her judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held-order.

Discretionary Account

An arrangement by which the owner of the account gives written power of attorney to someone else, usually the broker or a commodity trading advisor, to buy and sell without prior approval of the account owner. Often referred to as a Managed Account.

NFA

Dismiss

In a legal context, to terminate a case without a complete trial.

NFA

Dismissal

In a legal context, the removal of a case out of the court; the termination of a case without a complete trial.

NFA

Dismissal With Prejudice

Usually considered an adjudication upon the merits and will operate as a bar to future action.

NFA

Dismissal Without Prejudice

Usually an indication that the dismissal affects no right or remedy of the parties (i.e., is not on the merits and does not bar a subsequent suit on the same cause of action).

NFA

Dominant Future

That future having the largest amount of open interest.

CFTC

Double Hedging

As used by the CFTC, it implies a situation where a trader holds a long position in the futures market in an 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.

NFA

DRT ("Disregard Tape") or Not-Held Order

Absent any restrictions, a "DRT" (Not-Held Order) means any order giving the floor broker complete discretion over price and time in execution of an order, including discretion to execute all, some, or none of this order.

CFTC

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) a futures commission merchant 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 day.

NFA

Duration

A measure of a bond's price sensitivity to changes in interest rates

CFTC

Dutch Action

An auction of a debt instrument (such as a Treasury note) in which all successful bidders receive the same yield (the lowest yield that results in the sale of the entire amount to be issued).

CFTC

Term

Definition

Source

Early exercise

A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.

Ease Off

A minor and/or slow decline in the price of a market

CFTC

ECN

Electronic Communications Network, frequently used for creating electronic stocks or futures market

CFTC

Economically Deliverably Supply

That portion of the deliverable supply of a commodity that is in position for delivery against a futures contract, and is not otherwise unavailable for delivery. For example, Treasury bonds held by long-term investment funds are not considered part of the economically deliverable supply of a Treasury bond futures contract

CFTC

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.

NFA

Electronic Order

An order placed electronically (without the use of a broker) either via the Internet or an electronic trading system.

NFA

Electronic Trading Facility

A trading facility that operates by an electronic or telecommunications network instead of a trading floor and maintains an automated audit trail of transactions.

CFTC

Electronic Trading System

Systems that allow participating exchanges to list their products for trading after the close of the exchange's open outcry trading hours (i.e., Chicago Board of Trade's Project A, Chicago Mercantile Exchange's GLOBEX and New York Mercantile Exchange's ACCESS.)

NFA

Elegible Commercial Entity

An eligible contract participant or other entity approved by the CFTC that has a demonstrable ability to make or take delivery of an underlying commodity of a contract; incurs risks related to the commodity; or is a dealer that regularly provides risk management, hedging services, or market-making activities to entities trading commodities or derivative agreements, contracts, or transactions in commodities.

CFTC

Elegible Contract Participant

An entity, such as a financial institution, insurance company, or commodity pool, that is classified by the Commodity Exchange Act as an eligible contract participant based upon its regulated status or amount of assets. This classification permits these persons to engage in transactions (such as trading on a Derivatives Transaction Execution Facility) not generally available to non-eligible contract participants, i.e., retail customers.

CFTC

Elliot Wave Theory

(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; or (2) in technical analysis, a charting method based on the belief that all prices act as wavers, rising and falling rhythmically.

NFA

E-Local

A person with trading privileges at an exchange with an electronic trading facility who trades electronically (rather than in a pit or ring) for his or her own account, often at a Trading Arcade.

CFTC

Emergency

Any market occurrence or circumstance which requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of, or delivery pursuant to, any contracts on a contract market.

CFTC

E-Mini

A mini contract that is traded exclusively on an electronic trading facility. E-Mini is a trademark of the Chicago Mercantile Exchange

CFTC

Enjoin

To command or instruct with authority; to abate, suspend or restrain. For example, one may be "enjoined" or commanded by a court with equitable powers, either to do a specific act or to refrain from doing a certain act.

NFA

Enumerated Agricultural Commodities

The commodities specifically listed in Section 1a(3) of the Commodity Exchange Act : wheat, cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, and frozen concentrated orange juice.

CFTC

Equity

The dollar value of a futures trading account if all open positions were offset at the going market price.

NFA

Equity option

An option on shares of an individual common stock or exchange traded fund.

Equivalent strategy

A strategy which has the same risk-reward profile as another strategy. For example, a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread. See also Synthetic position

Escrow Account

A special account in which a lawyer or escrow agent deposits money or documents that do not belong to him or his firm.

NFA

Estoppel

A bar which precludes someone from denying the truth of a fact which has been determined in an official proceeding or by an authoritative body.

NFA

Euro

The Official currency of most members of the European Union

CFTC

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, Eurodollars, Euro-Swiss francs, or Euroyen).

CFTC

Eurodollar

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

NFA

European Currency Unit

The official unit of account of the European Monetary System. It is a combination or basket of the currencies from the 12 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, Potuguese escudo and the Danish krona.

NFA

European Option

An option that may be exercised only on the expiration date.

CFTC

European-style option

An option that can be exercised only during a specified period of time just prior to its expiration. See also American-style option

Even Lot

A unit of trading in a commodity established by an exchange to which official price quotations apply.

NFA

Ex Parte

A Latin term that means "by or for one party." Refers to situations in which only one party (and not the adversary) appears before an adjudicating body. Such meetings are often forbidden.

NFA

Ex Pit Transaction

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 Exchange for Physicals, Against Actuals or Exchange of Futures for Cash.

NFA

Exchange for Physicals

A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as Against Actuals or Versus Cash.

NFA

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 Exchange for Physicals, Against Actuals or Ex-Pit Transactions.

NFA

Exchange of Futures for Swap

privately negotiated transaction in which a position in a physical delivery futures contract is exchanged for a cash-settled swap position in the same or a related commodity, pursuant to the rules of a futures exchange.

CFTC

Exchange Rate

The price of one currency stated in terms of another currency.

NFA

Exchange Risk Factor

The delta value of an option as computed daily by the exchange on which it is traded.

NFA

Exchange traded funds (ETFs)

Exchange traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded in a similar fashion as a single equity. The first ETF came about in 1993 with the AMEX's concept of a tradable basket of stocks -- the Standard & Poor's Depositary Receipt (SPDR). Today, the number of ETFs that trade options continues to grow and diversify. Investors can buy or sell shares in the collective performance of an entire stock portfolio - or a bond portfolio -- as a single security. Exchange traded funds allow some of the more favorable features of stock trading, such as liquidity and ease of equity style features to more traditional index investing.

Excluded Community

In general, the Commodity Exchange Act defines an excluded commodity as: any financial instrument such as a security, currency, interest rate, debt instrument, or credit rating; any economic or commercial index other than a narrow-based commodity index; or any other value that is out of the control of participants and is associated with an economic consequence.

CFTC

Ex-date / Ex-dividend date

The day before which an investor must have purchased the stock in order to receive the dividend. On the ex-dividend date, the previous day's closing price is reduced by the amount of the dividend (rounded up to the nearest eighth) because purchasers of the stock on the ex-dividend date will not receive the dividend payment. This date is sometimes referred to simply as the 'ex-date,' and can apply to other situations; for example, splits and distributions. If you purchase a stock on the ex-date for a split or distribution you are not entitled to the split stock or that distribution. However, the opening price for the stock will have been reduced by an appropriate amount, as on the ex-dividend date. Weekly financial publications, such as Barron's, often include a stock's upcoming 'ex-date' as part of their stock tables.

Exempt Board of Trade

A trading facility that trades commodities (other than securities or securities indexes) having a nearly inexhaustible deliverable supply and either no cash market or a cash market so liquid that any contract traded on the commodity is highly unlikely to be susceptible to manipulation . An exempt board of trade’s contracts must be entered into by parties that are eligible contract participants.

CFTC

Exempt Commercial Market

An electronic trading facility that trades exempt commodities on a principal-to-principal basis solely between persons that are eligible commercial entities.

CFTC

Exempt Commodity

The Commodity Exchange Act defines an exempt commodity as any commodity other than an Excluded Commodity or an agricultural commodity. Examples include energy commodities and metals

CFTC

Exempt Foreign Firm

Foreign firm that does business with U.S. customers only on foreign exchanges and is exempt from registration under CFTC regulations.

NFA

Exercise

Exercising a call means that you elect to purchase the underlying futures contract at the option strike price. Exercising a put means that you elect to sell the underlying futures contract at the option strike price.

NFA

Exercise by exception processing

A procedure used by The Options Clearing Corporation as an operational convenience for it's clearing members. Under these proceedings, a clearing member is deeming to have tendered exercise notices for options that are in-the-money by threshold amounts, unless specifically instructed not to do so. This procedure protects the owner from losing the intrinsic value of the option because of failure to exercise. Unless instructed not to do so, all expiring equity options that are held in customer accounts will be exercised if they are in the money by a specified amount.

Exercise 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.

NFA

Exercise settlement amount

The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised.

Exotic Options

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

CFTC

Expiration Date

Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts.

NFA

Expiration Friday

The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.

Expiration month

The month during which the expiration date occurs.

Extrinsic Value

The amount of money options buyers are willing to pay for an option in anticipation that over time a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value.

NFA

Term

Definition

Source

FAB (Five Against Bond) Spread

A futures spread trade involving the buying (selling) of a five-year Treasury note futures contract and the selling (buying) of a long-term (15-30 year) Treasury bond futures contract.

CFTC

FAN (Five Against Note) Spread

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 note futures contract.

CFTC

Fannie Mae

A corporation (government-sponsored enterprise) 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). Formerly the Federal National Mortgage Association.

CFTC

Fast Market

Transactions in the pit or ring take place in such volume and with such rapidity that price reporters behind with price quotations insert "FAST" and show a range of prices. Also called a fast tape.

CFTC

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.

NFA

Felony

Serious crime punishable by incarceration for a year or more. Includes offenses such as rape, murder, robbery, burglary and arson.

NFA

Fence

A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation.

Fibonacci Numbers

A number sequence discovered by a thirteenth century Italian mathematician Leonardo Fibonacci (ca 1170-1250), who introduced Arabic numbers to Europe, in which the sum of any two consecutive numbers equals the next highest number – i.e., following this sequence: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55 and so on. The ratio of any number to its next highest number approaches 0.618 after the first four numbers. These numbers are used by technical analysts to determine price objectives from percentage retracements.

CFTC

Fictitious Trading

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

NFA

Fiduciary Duty

An obligation to act solely in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, and an attorney has a fiduciary duty to a client.

NFA

Fill or Kill Order

A customer order which demands immediate execution or cancellation.

NFA

Final Decision

A decision of a regulatory organization which cannot be further appealed within the regulatory organization, is not subject to a stay and has not been reversed.

NFA

Final Injunction

An order of the court requiring a party to do something or refrain from doing or continuing to do a particular act or activity.

NFA

Final Order

In a registration disqualification proceeding, a Final Order is issued upon resolution of the matter. A Final Order will condition or deny an applicant's registration; or revoke, restrict or suspend a registrant's registration.

NFA

Final Settlement Price

The price at which a cash-settled futures contract is settled at maturity, pursuant to a procedure specified by the exchange

CFTC

Financial Action Type

A violation arising from failure to meet financial requirements.

NFA

Financial and Position Reporting Action Type

A violation arising from failure to meet financial reporting requirements or contract position reporting requirements.

NFA

Financial Instrument

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 stock indexes of various kinds.

NFA

First Notice Day

The first day on which the notice of intent to deliver a commodity in fulfillment of an expiring futures contract can be given by the clearing house to a buyer. Varies from contract to contract.

NFA

Fix or Fixing

The settling of the gold price at 10:30 a.m. (first fixing) and 3:00 p.m. (second fixing) in London by five representatives of the London Gold Market.

NFA

Fixed Income Security

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

NFA

Floor Broker (FB)

An individual who executes orders on the trading floor of an exchange for any other person.

NFA

Floor Committee

A committee empowered by an exchange for the purposes of resolving disputes and supervising the conduct and practices of members and others on the floor of an exchange. The committee may also conduct investigations, hearings and impose fines and other sanctions.

NFA

Floor Recordkeeping Action Type

A violation arising from failure to make or preserve any record required to be made on the floor of an exchange in connection with the disposition of an order or the execution of a trade.

NFA

Floor Trader (FT)

Members of an exchange who are personally present, on the trading floors of exchanges, to make trades for themselves. Sometimes called Locals.

NFA

FOB

Free on Board. Indicates that all delivery, inspection and elevation or loading costs involved in putting commodities on board a carrier have been paid.

NFA

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).

NFA

Foreign Exchange

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

NFA

Foreign Exchange Market

Forex market. An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication.

NFA

Foreign Futures or Foreign Options Secured Amount

The amount of money, securities and property that an FCM must maintain in a separate account to cover or satisfy all of its current obligations to foreign futures or foreign options customers. Such money, securities or property may not be commingled with the money, securities and property of the FCM.

NFA

Foreign Terminal

Computer terminals placed in the United States by foreign boards of trade. These terminals are used for the purpose of facilitating the trading of products available through those boards of trade.

NFA

Forward Contract

A contract on which a seller agrees to deliver a specified cash commodity to a buyer sometime in the future. In contrast to futures contracts, the terms of forward contracts are not standardized. Forward contracts are not traded on federally designated exchanges.

NFA

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).

NFA

Forward Months

Futures contracts, currently trading, calling for later or distant delivery.

CFTC

Forward Purchase or Sale

A purchase or sale between commercial parties of an actual commodity for deferred delivery.

NFA

Forwardation

A market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery months; opposite of Backwardation.

NFA

Frontrunning

A process whereby a futures or options position is taken based on non-public information about an impending transaction in the same or related futures or options contracts.

NFA

Fully Disclosed Account

An account carried by a futures commission merchant in the name of the individual customer; the opposite of an Omnibus Account.

NFA

Fund of Funds

A commodity pool that invests in other commodity pools rather than directly in futures and options contracts.

NFA

Fundamental Analysis

The study of basic, underlying factors which will affect the supply and demand and hence the price of a futures contract.

NFA

Fungibility

Interchangeability resulting from standardization. Options listed on national exchanges are fungible, while over-the-counter options generally are not. Classes of options listed and traded on more than one national exchange are referred to as multiple-listed / multiple-traded options.

Futures Commission Merchant (FCM)

An individual or organization which solicits or accepts orders to buy or sell futures or options contracts and accepts money or other assets from customers in connection with such orders. Must be registered with the Commodity Futures Trading Commission.

NFA

Futures Contract

A legally binding agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are standardized according to the quality, quantity and delivery time and location for each commodity.

NFA

Futures Exchange

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

NFA

Futures Industry Association (FIA)

The national trade association for futures commission merchants.

NFA

Futures Option

An option on a futures contract

CFTC

Futures Price

(1) Commonly held to mean the price of a commodity for future delivery that is traded on a futures exchange; or (2) the price of any futures contract.

NFA

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, ten deep out-of-money options with a delta of 0.20 would be considered two 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.

CFTC