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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.
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Day Trade :-
The purchase and sale of a futures or an
options contract on the same day.
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Dealer Tank Wagon Price (DTW) :-
The price, usually of gasoline, offered by
the majors which is branded and delivered to the service station on a
cost, insurance, and freight basis.
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Degree Day :-
A measure of the coldness of the weather
(heating degree day) or its heat (cooling degree day) based on the extent
to which the daily mean temperature falls below or rises above 65 degrees
Fahrenheit. .
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Delivered :-
Often regarded as synonymous with cost,
insurance, and freight in the international cargo trade, its terms differ
from the latter in a number of ways. Generally, the seller's risks are
greater in a delivered transaction because the buyer pays on the basis
of landed quality/quantity. Risk and title are borne by the seller until
such time as the commodity, such as oil, passes from shipboard into the
connecting flange of the buyer's shore installation. The seller is responsible
for clearance through customs and payment of all duties. Any in-transit
contamination or loss of cargo is the seller's liability. In delivered
transactions, the buyer pays only for the quantity of oil actually received
in storage.
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Delivery :-
The term has distinct meaning when used in
connection with futures contracts. Delivery generally refers to the changing
of ownership or control of a commodity under specific terms and procedures
established by the exchange upon which the contract is traded. Typically,
except for energy, the commodity must be placed in an approved warehouse,
precious metals depository, or other storage facility, and be inspected
by approved personnel, after which the facility issues a warehouse receipt,
shipping certificate, demand certificate, or due bill, which becomes a
transferable delivery instrument. Delivery of the instrument usually is
preceded by a notice of intention to deliver. After receipt of the delivery
instrument, the new owner typically can take possession of the physical
commodity, can deliver the delivery instrument into the futures market
in satisfaction of a short position, or can sell the delivery instrument
to another market participant who can use it for delivery into the futures
market in satisfaction of his short position or for cash, or can take
delivery of the physical himself. The procedure differs for energy contracts.
Bona fide buyers or sellers of the underlying energy commodity can stand
for delivery. If a buyer or seller stands for delivery, the contract is
held through the termination of trading. The buyer and seller each file
a notice of intent to make or take delivery with their respective clearing
members who file them with the Exchange. Buyers and sellers are randomly
matched by the Exchange. The delivery payment is based on the contract's
final settlement price.
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Delivery Month :-
The month specified in a given futures contract
for delivery of the actual physical spot or cash commodity.
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Delivery Notice :-
A notice presented through an exchange's
clearinghouse by a clearing member announcing the intention to deliver
the actual commodity in satisfaction of a contract obligation.
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Delivery Point(s) :-
Location(s) designated by an exchange at
which delivery may be made in fulfillment of contract terms.
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Delta :-
The sensitivity of an option's value to a
change in the price of the underlying futures contract, also referred
to as an option's futures-equivalent position. Deltas are positive for
calls, and negative for puts. Deltas of deep in-the-money options are
approximately equal to one; deltas of at-the-money options are 0.5; and
deltas of deep out-of-the-money options approach zero.
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Delta Neutral Spread :-
A spread where the total delta position on
the long side and the total delta on the short side add up to approximately
zero.
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Depository or Warehouse Receipt :-
A document issued by a bank or warehouse
indicating ownership of a commodity stored in a bank depository or warehouse.
In the case of many commodities deliverable against futures contracts,
transfer of ownership of an appropriate depository receipt may effect
contract delivery.
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Derivative :-
Financial instrument derived from a cash
market commodity, futures contract, or other financial instrument. Derivatives
can be traded on regulated exchange markets or over-the-counter. For example,
futures contracts are derivatives of physical commodities; options on
futures are derivatives of futures contracts.
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Differentials :-
Price differences between classes, grades,
and locations of different stocks of the same commodity.
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Discount :-
1) A downward adjustment in price allowed for delivery of stocks of a commodity of lesser than contract grade against a futures contract. 2) Sometimes used to refer to the price differences between futures of different delivery months.
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Discretionary Account :-
An arrangement by which the holder of an
account gives written power of attorney to someone else, often a broker,
to buy and sell without prior approval of the account holder. Often referred
to as a "managed account." .
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Double Bottoms :-
A chart pattern of the price movement of
a commodity that shows resistance to a falling market; the inverse of
double tops. The price patterns are used by technical analysts to recognize
a reversal of a price trend.
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Double Tops :-
A chart pattern of commodity price movements
that depict a rising market which hits resistance at a certain level,
retreats, rises again, but still cannot breach the previous resistance
point, and falls back again. The price patterns are used by technical
analysts to recognize a reversal of a price trend.
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