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Glossary of Terms

AA's / Against Actuals

A transaction in which the buyer of a 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).

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.


Market situation in which futures prices are progressively lower in the distant delivery months. For instance, if the sugar quotation for March is $260.00 per tonne and that for May is $225.00 per tonne, the backwardation $35.00 per tonne. (Backwardation is the opposite of contango).


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 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.


A market trending downward; or a person who expects prices to go lower. 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.


An offer to buy a definite number of financial instruments at a specified price.


A person paid a fee or commission for executing buy or sell orders for a customer.


A market trending upward; or a person who expects price to go higher. The opposite of "bear." A news item is considered bullish if it portends higher prices.

Bull Market

A market in which prices are rising.

C & F

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


Cost, insurance and freight paid to a point of destination and included in the price.

Cash Commodity

The physical or actual physical product on which a futures contract is based. This product can include agricultural commodities, financial instruments or the cash equivalents of index futures. Sometimes called Spot Commodity or Actuals.

Cash Delivery

See Delivery

Cash Market

Markets where trades take place for spot (immediate or near immediate) delivery as opposed to future delivery.

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.

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


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.

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."


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

Commission House

A concern that buys and sells actual commodities or futures contracts for the accounts of customers.


The charge made by a commission house for buying and selling commodities.


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


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


The cancellation of a short position in any financial instrument or cash commodity by the purchase of an equal quantity of the same item. (1) Purchasing futures to offset a short position. Same as Short Covering. (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.


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


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.

Delivery Date

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

Delivery Month

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

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.


The tender and receipt of the actual financial instrument or commodity, or, in the case of agricultural commodities, warehouse receipts covering such a commodity, in settlement of a futures or options contract. Some contracts settle in cash (cash delivery) in which case open positions are marked to market on the last day of the contract based on the cash market close.


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.


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. These differentials are fixed by the contract terms on most exchanges. See Allowances.


Exchange for Physical. See AA’s/Against Actuals.

(Free On Board)

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

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.

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.

Forward Market

Refers to informal (non-exchange) trading of commodities to be delivered at a future date. Contracts for forward delivery are "personalised" (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.


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 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 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.


Various qualities of a commodity.


A sale of futures to offset the ownership or purchase of the underlying cash commodity in order to protect it against adverse price moves; or, conversely, a purchase of futures to offset the sale of the underlying cash commodity, again for protection against adverse price moves.


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

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.

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.

Last Notice Day

The final day on which notices of intent to deliver against futures market positions can be received.

Last Trading Day

Day on which trading ceases for the maturing (current) delivery month.

Licensed Warehouse/ Warehouse

See Nominated Warehouskeeper/Warehouse.


Independent trader who trades his own money on an exchange and whose activities provide market liquidity. Some locals act as brokers as well, but are subject to certain rules that protect customer orders.


(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.


A unit of trading.


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 Clearing House, for the purpose of insuring the broker or Clearing House against loss on open futures contracts. The margin is not partial payment on a purchase. Initial margin is the total amount of margin per contract required by the broker when a futures position is opened. If the equity in a customer's account drops to, or under, a given 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


Daily cash flow system used by futures exchanges and or clearing houses 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.

Minimum Price Fluctuation

Smallest increment of price movement possible in trading a given contract.

Nearby Delivery Month

The month of the futures contract closest to maturity.


The futures contract closest to expiration.


The nearest delivery months of a commodity futures market.

Net Position

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

Nominated Warehousekeeper/ Warehouse

A warehousekeeper or warehouse approved by an exchange from which a commodity may be delivered against a futures contract. Also called Licensed Warehousekeeper or Warehouse.

Notice Day

Any day on which notices of intent to deliver on futures contracts may be issued.


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


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.

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.

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.


An interest in the market, either long or short, in the form of one or more open contracts.

Price Discovery

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

Quote Venders

Providers of quoted real-time prices in recognised exchanges, at a fee, by means of electronic transfer.


An upward movement of prices. Same as Recovery.


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


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.


A change of direction in prices.

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.

Round Turn

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

Settlement 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 act of fulfilling the delivery requirements of the futures contract.

Short Covering

see Cover.


(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.


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.


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

(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. 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 simultaneous purchase of one contract and sale of another. Spreads can be transacted between contracts with the same underlying commodity but different months; the same month but different commodities; or the same month and commodity but traded on different exchanges.


The standardised minimum price movement of a futures or options contract.

Variation Margin

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

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.

Warehouse Warrant/  Receipt

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



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