Series 3 flashcards
Series 3 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Basis
- The cash price of a commodity minus the price of a specified futures contract; basis narrows toward zero as that contract approaches its delivery month.
- Tick value
- The dollar amount gained or lost per contract from a one-tick price move, calculated as the minimum price fluctuation multiplied by the contract unit.
- Open interest
- The total number of futures contracts outstanding at a given time, counting each contract only once rather than counting both the long and short sides.
- Designated contract market
- An exchange the CFTC has approved to list and trade specific futures and options contracts under the Commodity Exchange Act, such as CME or ICE Futures U.S.
- Clearinghouse
- The entity that becomes buyer to every seller and seller to every buyer, guaranteeing performance and managing counterparty risk through margin and guarantee funds.
- Futures commission merchant
- A firm registered with the CFTC and NFA that solicits or accepts futures and options orders and accepts customer money to margin those trades.
- Short hedge
- Selling futures to protect a cash commodity already owned or expected to be sold, so a decline in the cash price is offset by a futures gain.
- Long hedge
- Buying futures to lock in the price of a commodity needed later, so a rise in the cash market is offset by a gain on the futures position.
- Hedge ratio
- The number of futures contracts required to offset a cash position, computed as the cash position value times its price sensitivity divided by the futures contract value.
- Cross hedge
- Hedging a cash commodity with futures on a different but related commodity because no matching contract exists; it carries greater basis risk than a direct hedge.
- Scalper
- A speculator who trades very short term, holding positions for seconds or minutes and taking small repeated profits, thereby supplying liquidity to the market.
- Intramarket spread
- A position long one delivery month and short another month of the same futures contract, profiting from a change in the price difference between those months.
- Position trader
- A speculator who holds futures positions for days, weeks or longer, relying on fundamental or longer-term technical analysis rather than intraday price movement.
- Call option
- The right, but not the obligation, to buy an underlying futures contract at a specified strike price on or before expiration; the buyer pays a premium.
- Intrinsic value
- For a call, the futures price minus the strike when positive; for a put, the strike minus the futures price when positive; otherwise it is zero.
- Time value
- The part of an option premium above intrinsic value, reflecting the chance the option gains value before expiration; it shrinks as expiration approaches.
- Option writer obligation
- The seller of an option collects the premium and must perform if assigned, taking a futures position at the strike and posting required margin.
- Stocks-to-use ratio
- Ending stocks of a commodity divided by total usage for the marketing year; a low ratio indicates tight supply and typically supports higher prices.
- Support level
- A price area where buying interest has repeatedly stopped declines, appearing as a floor on a chart; a decisive break below is read as bearish.
- Commitment of Traders
- A weekly CFTC report showing long and short positions held by commercial, non-commercial and non-reportable traders in each futures market.
- Discretionary account
- An account for which the customer gives written power of attorney allowing another person to place orders without prior approval, subject to firm principal approval.
- JTWROS account
- A joint account with right of survivorship in which two or more owners share the account and a deceased owner's interest passes to the survivors.
- Segregated funds
- Customer money held by a futures commission merchant for margining trades, kept separate from the firm's own funds and unavailable to pay firm obligations.
- Maintenance margin
- The minimum equity a customer must keep in a futures account; falling below it triggers a margin call to restore equity to the initial level.
- Mark-to-market
- The daily settlement practice of crediting gains and debiting losses on open futures positions to the account, so cash equity changes every trading day.
- Spread margin
- The reduced margin requirement an exchange sets for a position long one contract month and short another, because the spread's price volatility is smaller.
- Stop order
- An order that becomes a market order once the market trades at or through the stop price; buy stops rest above the market and sell stops below it.
- First notice day
- The first day a holder of a long futures position may be assigned a delivery notice; traders avoiding delivery close positions before this date.
- GTC order
- A good-till-canceled order that remains working day after day until it is filled, canceled by the customer, or expires under exchange rules.
- Position limit
- The maximum number of speculative contracts one trader may hold in a given futures market, set by the CFTC or exchange to prevent excessive concentration.
- Wash trade
- A prohibited transaction in which a trader buys and sells the same contract for the same account, creating artificial volume without changing ownership or risk.
- Associated person
- An individual registered with the NFA who solicits customer orders or supervises solicitation for a futures commission merchant or introducing broker.