|
|
|
Glossary of Terms
As the commerce and industry have evolved, each sector has developed a vocabulary that uniquely describes its products,
technology, and business practices, known as a jargon of respective domain. Often, these words seem incomprehensible to
the layman. This short lexicon is not meant to be a comprehensive dictionary of markets; nevertheless it would be a useful
guide for the beginners who are keen to no more about financial markets and futures industry.
B
-
Backwardation :-
Market situation in which futures prices
are lower in each succeeding delivery month. Also known as an inverted
market. The opposite of contango.
-
Banker's Acceptance :-
A draft or bill of exchange accepted by
a bank; the accepting institution guarantees payment.
-
Base Metal :-
Copper, aluminum, lead, nickel, and tin.
-
Basis :-
The differential that exists at any time
between the cash, or spot, price of a given commodity and the price of
the nearest futures contract for the same or a related commodity. Basis
may reflect different time periods, product forms, qualities, or locations.
Cash minus futures equals basis.
-
Basis Risk :-
The uncertainty as to whether the cash-futures
spread will widen or narrow between the time a hedge position is implemented
and liquidated. .
-
Bear :-
One who anticipates a decline in price or
volatility. Opposite of a bull.
-
Bear Market :-
Market in which prices are in a declining
trend.
-
Bear Spread :-
1) 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 is wrong. This can usually be accomplished
by selling a nearby delivery and buying a deferred delivery. 2) A delta-negative
options position comprised of long and short options of the same type,
either calls or puts, designed to be profitable in a declining market.
An option with a lower strike price is sold and one with a higher strike
price is bought.
-
Bid :-
A motion to buy a futures or options contract
at a specified price. Opposite of offer.
-
Black-Scholes :-
Model An options pricing formula initially
derived by Fisher Black and Myron Scholes for securities options and later
refined by Mr. Black for options on futures.
-
Book Transfer :-
Transfer of title without actually delivering
the product.
-
Box Spread :-
An options market arbitrage in which both
a bull spread and a bear spread are established for a riskless profit.
One spread includes put options and the other includes calls.
-
Brand :-
Insignia identifying the producer of a specific
commodity.
-
Break :-
A rapid and sharp price decline.
-
Break out :-
A breach of trading range, a sharp move of
the prices, up or down.
-
Breakeven Point :-
The underlying futures price at which a given
options strategy is neither profitable nor unprofitable. For call options,
it is the strike price plus the premium. For put options, it is the strike
price minus the premium.
-
Broker :-
1) An individual who is paid a fee or commission
for acting as an agent in making contracts, sales, or purchases. 2) A
floor broker is a person who actually executes trading orders on the floor
of an exchange. 3) An account executive, registered commodity representative,
or customers' man who deals with customers and their orders in commission
house offices. See also Futures Commission Merchant. .
-
Bulge :-
A rapid advance in futures prices. A sharp
rise in the prices.
-
Bullion :-
Precious metals cast into bars or other
uncoined form.
-
Bullion Coin :-
A precious metal coin whose market value
is determined by its inherent precious metal content. They are bought
and sold mainly for investment purposes.
-
Bull Market :-
Market in which prices are in an upward trend.
-
Bull Spread :-
1) 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. This can be accomplished by buying
the nearby delivery and selling the deferred. 2) A delta-positive options
position composed of both long and short options of the same type, either
calls or puts, designed to be profitable in a rising market. An option
with a lower strike price is bought and one with a higher strike price
is sold.
-
Bundle :-
A stack of copper cathodes strapped together
for shipping.
-
Buyer's Market :-
A condition of the market in which there
is an abundance of goods available and hence buyers can afford to be selective
and may be able to buy at less than the price that previously prevailed.
See seller's market.
-
Buying Hedge :-
Also called a long hedge. Buying futures
contracts to protect against possible increased costs of commodities that
will be needed in the future.
|