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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.
C
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Calendar Spread :-
An options position comprised of the purchase
and sale of two options contracts of the same type that have the same
strike prices but different expiration dates. Also known as a horizontal,
or time spread.
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Call Option :-
An option that gives the buyer (holder) the
right, but not the obligation, to buy a futures contract (enter into a
long futures position) for a specified price within a specified period
of time in exchange for a one-time premium payment. It obligates the seller
(writer) of an option to sell the underlying futures contract (enter into
a short futures position) at the designated price, should the option be
exercised at that price.
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Cap :-
A supply contract between a buyer and a
seller, whereby the buyer is assured that he will not have to pay more
than a given maximum price. This type of contract is analogous to a call
option. . .
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Carrying Charge :-
The total cost of storing a physical commodity
over a period of time. Includes storage charges, insurance, interest,
and opportunity costs.
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Cash Commodity :-
The actual physical commodity. Sometimes
called a spot commodity or actuals.
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Cash Market :-
The market for a cash commodity where the
actual physical products are traded. .
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Cathode :-
A flat rectangular piece of metal which has been refined by electrolysis.Copper is commonly traded and delivered in this form.
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Charting :-
The use of graphs and charts in the analysis
of market behavior, so as to plot trends of price movements, average movements
of price, volume, and open interest, in the hope that such graphs and
charts will help one to anticipate and profit from price trends. Contrasts
with fundamental analysis.
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CIF :-
Cost, Insurance, Freight. Term refers to
a sale in which the buyer agrees to pay a unit price that includes the
free on board (FOB) value at the port of origin plus all costs of insurance
and transportation. This type of transaction differs from a "delivered"
agreement in that it is generally ex-duty, and the buyer accepts the quantity
and quality at the loading port rather than paying for quality and quantity
as determined at the unloading port. Risk and title are transferred from
the seller to the buyer at the loading port, although the seller is obliged
to provide insurance in a transferable policy at the time of loading.
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Class of Options :-
All call options, or all put options, exercisable
for the same underlying futures contract and which expire on the same
expiration date.
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Clearing Member :-
Clearing members of the New York Mercantile
Exchange accept responsibility for all trades cleared through them, and
share secondary responsibility for the liquidity of the Exchange's clearing
operation. They earn commissions for clearing their customers' trades,
and enjoy special margin privileges. Original margin requirements for
clearing members are lower than for non-clearing membbers and customers,
and clearing members may use letters of credit posted with the clearinghouse
as original margin for customer accounts as well as for their own trades.Clearing
members must meet a minimum capital requirement.
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Clearing house :-
An Exchange-associated body charged with
the function of insuring the financial integrity of each trade. Orders
are "cleared" by means of the clearinghouse acting as the buyer to all
sellers and the seller to all buyers.
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Closing Range :-
A range of prices at which transactions took place at the closing of the market; buying and selling orders during the closing period might have been filled at any point within such a range.
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Collar :-
A supply contract between a buyer and seller
of a commodity, whereby the buyer is assured that he will not have to
pay more than some maximum price, and whereby the seller is assured of
receiving some minimum price. This is analogous to an option fence, also
known as a range forward.
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Commission :-
The fee charged by a futures broker for
the execution of an order.
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Commission House :-
An organization that trades commodities
and/or futures and options contracts for customer accounts in return for
a fee.
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Commission Merchant :-
One who makes a trade, either for another
member of an exchange or for a non-member client, but who makes the trade
in his own name and becomes liable as principal to the other.
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Commitment or Open Interest :-
The number of open or outstanding contracts
for which an individual or entity is obligated to the Exchange because
that individual or entity has not yet made an offsetting sale or purchase,
an actual contract delivery, or, in the case of options, exercised the
option.
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Commodity :-
As defined by the Commodity Futures Trading
Commission, specifically enumerated agricultural commodities, all other
goods and articles, except onions, and all services, rights, and interests
in which contracts for future delivery are presently, or in the future
may be, dealt.
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Commodity Futures Trading Commission :-
A federal regulatory agency authorized under
the Commodity Futures Trading Commission Act of 1974 to regulate futures
trading in all commodities. The commission is comprised of five commissioners,
one of whom is designated as chairman, all appointed by the President,
subject to Senate confirmation. The CFTC is independent of the Cabinet
departments. See CFTC
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Commodity Pool :-
A venture, usually a limited partnership,
in which funds contributed by a number of investors are combined for the
purpose of trading futures. Also called a commodity fund or a futures
fund.
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Commodity Pool Operator (CPO) :-
Acts as a general partner of commodity pools.
CPOs hire independent Commodity Trading Advisors to handle daily trading
decisions. Responsible for the pool's administration, structure, and selecting
and monitoring the traders who conduct transactions using the fund's money.
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Commodity Trading Advisor (CTA) :-
Directs trading in the managed accounts of
a commodity pool. Professional money managers who manage client assets
on a discretionary basis, using global futures markets as an investment
medium.
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Contango Market :-
A market situation in which prices are higher
in the succeeding delivery months than in the nearest delivery month.
Opposite of backwardation.
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Contingency Order :-
An order, which becomes effective only upon
the fulfillment of some condition in the marketplace.
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Contract :-
1) A term of reference describing a unit
of trading for a commodity future or option. 2) An agreement to buy or
sell a specified commodity, detailing the amount and grade of the product
and the date on which the contract will mature and become deliverable.
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Contract Grade :-
That grade of product established in the
rules of a commodity futures exchange as being suitable for delivery against
a futures contract.
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Contract Trading Volume :-
Daily trading volume recorded in the respective
commodity, currency or equity. .
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Conversion :-
A delta-neutral arbitrage transaction involving
a long futures contract, a long put option, and a short call option. The
put and call options have the same strike price and same expiration date.
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Cover :-
To offset a short futures or options position.
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Covered Writing :-
The sale of an option against an existing
position in the underlying futures contract. For example, short call and
long futures. .
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Cross Trade :-
Offsetting match by a broker of the buy order
of one customer against the sell order of another, or a match of a trade
made by a broker with his customer, a practice that is permissible only
when executed in accordance with the Commodity Exchange Act, Commodity
Futures Trading Commission regulations, and rules of the contract market.
Neither NYMEX Division nor COMEX Division members are permitted to take
the opposite side of a customer's order, except, under certain circumstances,
for trades involving long-dated (nine months or more forward) COMEX Division
copper futures.
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Current Delivery Month :-
The futures contract which matures and becomes
deliverable during the present month or the month closest to delivery.
Also called the spot month.
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