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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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Scalper :-
A speculator on the trading floor of an
exchange who buys and sells rapidly, with small profits or losses, holding
his positions for only a short time during a trading session. Typically
a scalper will stand ready to buy at a fraction below the last transaction
price and to sell at a fraction above, thus creating market liquidity.
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Seller's Market :-
A condition of the market in which there
is a scarcity of goods available and hence sellers can obtain better conditions
of sale or higher prices. Opposite of buyer's market.
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Selling Hedge (or Short Hedge) :-
Selling futures contracts to protect against
possible decreased prices of commodities. Also see hedging.
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Serial Expiration :-
Options on the same underlying futures contract
which expire in more than one month. NYMEX Division platinum options have
serial expiration.
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Series :-
All options of the same class which share
a common strike price.
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Settlement or Settling Price :-
The price established by the Exchange settlement
committee at the close of each trading session as the official price to
be used by the clearinghouse in determining net gains or losses, margin
requirements, and the next day's price limits. The term "settlement price"
is often used as an approximate equivalent to the term "closing price."
The close in futures trading refers to a brief period at the end of the
day, during which transactions frequently take place quickly and at a
range of prices immediately before the bell. Therefore, there frequently
is no one closing price, but a range of prices. The settlement price is
derived by calculating the weighted average of prices during that period.
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Short :-
1) The market position of a futures contract
seller whose sale obligates him to deliver the commodity unless he liquidates
his contract by an offsetting purchase. 2) A trader whose net position
in the futures market shows an excess of open sales over open purchases.
3) The holder of a short position. 4) In the options market, the position
of the seller of a call or a put option. The short in the options market
is obliged to take a futures position if he is assigned for exercise.
Opposite of long.
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Short Selling :-
Selling a contract with the idea of delivering
or of buying to offset it at a later date.
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Short the Basis :-
The purchase of futures as a hedge against
a commitment to sell in the cash or spot markets. See hedging. .
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Speculative Position Limit :-
The maximum position, either net long or
net short, in one commodity futures or options, or in all futures or options
of one commodity combined, which may be held or controlled by an entity
without a hedge exemption as prescribed by an exchange or the Commodity
Futures Trading Commission.
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Speculator :-
A trader who hopes to profit from the specific
directional price move of a futures or options contract, or commodity.
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Spot :-
Term which describes one-time open market
case (CHANGE TO CASH) transaction, where a commodity is purchased "on
the spot" at current market rates. Spot transactions are in contrast to
term sales, which specify a steady supply of product over a period of
time.
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Spot Month :-
The futures contract closest to maturity.
The nearby delivery month.
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Spread (Futures) :-
The simultaneous purchase and sale of futures
contracts for different months, different commodities, or different grades
of the same commodity.
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Spread (Options) :-
The purchase and sale of options which vary
in terms of type (call or put), strike prices, expiration dates, or both.
May also refer to an options contract purchase (sale) and the simultaneous
sale (purchase) of a futures contract for the same underlying commodity.
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Stock-Type Settlement :-
A settlement procedure in which the purchase
of a contract requires immediate and full payment by the buyer to the
seller. In stock-type settlement, the actual cash profit or loss from
a trade is not realized until the position is liquidated. NYMEX Division
energy and platinum options have this type of settlement procedure, which
differs from that in the futures market where gains and losses are realized
on a daily basis.
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Stop Limit Order :-
An order that goes into force as soon as
there is a trade at the specified stop price. The order, however, can
only be filled at the limit price or better. The stop price and the limit
price can be the same or different. The stop price is the price level
specified in the order.
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Stop-Loss :-
A resting order designed to close out a losing
position when the price reaches a level specified in the order. It becomes
an at-the-market order when the "stop" price is reached. Individuals also
use stops to enter the market when the prices reach a specified level.
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Straddle (Futures) :-
Also known as a spread, the purchase of one
futures month against the sale of another futures month of the same commodity.
A straddle trade is based on a price relationship between the two months.
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Straddle (Options) :-
The purchase or sale of both a put and a
call having the same strike price and expiration date. The buyer of a
straddle benefits from increased volatility, and the seller benefits from
decreased volatility.
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Strangle :-
An options position consisting of the purchase
or sale of put and call options having the same expiration but different
strike prices.
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Strike Price :-
The price at which the underlying futures
contract is bought or sold in the event an option is exercised. Also called
an exercise price.
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Strip :-
The simultaneous purchase (or sale) of futures
positions in consecutive months. The average of the prices for the futures
contracts bought (or sold) is the price level of the hedge. A six-month
strip, for example, consists of an equal number of futures contracts for
each of six consecutive contract months. Also known as a calendar strip.
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Support :-
In technical analysis, a price area where
new buying is likely to come in and stem any decline.
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Synthetic Futures :-
A position created by combining call and
put options. A synthetic long futures position is created by combining
a long call option and a short put option for the same expiration date
and the same strike price. A synthetic short futures position is created
by combining a long put and a short call with the same expiration date
and the same strike price.
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Swap :-
A custom-tailored, individually negotiated
transaction designed to manage financial risk, usually over a period of
one to 12 years. Swaps can be conducted directly by two counterparties,
or through a third party such as a bank or brokerage house. The writer
of the swap, such as a bank or brokerage house, may elect to assume the
risk itself, or manage its own market exposure on an exchange. Swap transactions
include interest rate swaps, currency swaps, and price swaps for commodities,
including energy and metals. In a typical commodity or price swap, parties
exchange payments based on changes in the price of a commodity or a market
index, while fixing the price they effectively pay for the physical commodity.
The transaction enables each party to manage exposure to commodity prices
or index values. Settlements are usually made in cash.
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