Series 3 key terms

A standardized, exchange-traded agreement to buy or sell a set quantity of a commodity or financial instrument at a specified price, with delivery or cash settlement occurring on a future date.

The smallest permitted price change for a given futures or options contract, set by the exchange in its contract specifications. Tick value multiplied by position size gives the dollar value of a one-tick move.

The number of contracts in a given delivery month that have been opened and not yet closed by an offsetting trade, delivery, or expiration. Each contract is counted once, not once per side.

A market where distant delivery months trade above nearby months, a pattern that usually reflects the cost of storing, insuring, and financing the commodity between the two dates.

A market where nearby delivery months trade above distant months, often signaling tight current supply or unusually strong immediate demand for the physical commodity.

A U.S. exchange that the CFTC has authorized to list and trade particular futures or option contracts, subject to ongoing self-regulatory, recordkeeping, and reporting obligations.

The month named in a futures contract during which the seller may make delivery and the buyer must accept it; notice periods and last trading day are tied to it.

The difference between a local cash price for a commodity and the price of the related futures contract, commonly quoted as cash minus futures.

The danger that basis will move against a hedger between placing and lifting a hedge, so the futures gain or loss does not exactly offset the cash market result.

A hedge in which a party who owns a commodity or expects to sell one sells futures contracts to protect against a decline in prices before the sale is completed.

A hedge in which a party who must buy a commodity later buys futures now to protect against rising prices before the purchase is made.

A participant who takes on price risk in pursuit of profit and has no commercial need for the underlying commodity; speculators add the liquidity that hedgers rely on.

The simultaneous purchase and sale of two related futures contracts, such as different delivery months or related products, in an attempt to profit from a change in their price relationship.

Buying a commodity or contract in one market while simultaneously selling an equivalent one in another to capture a price discrepancy with little or no market risk.

A contract giving its buyer the right, but not the obligation, to buy the underlying futures contract at a stated price on or before the expiration date.

A contract giving its buyer the right, but not the obligation, to sell the underlying futures contract at a stated price on or before the expiration date.

The price a buyer pays, and a seller receives, for an option; it consists of intrinsic value plus time value and is quoted per unit of the underlying contract.

The price at which an option buyer may buy the underlying futures contract for a call, or sell it for a put, if the option is exercised.

The amount by which an option is in the money, measured as the difference between the strike price and the current underlying futures price and never less than zero.

The portion of an option premium that exceeds intrinsic value, reflecting the chance the option gains value before expiration; it shrinks as expiration approaches.

Forecasting prices by studying supply and demand factors such as production, inventories, weather, exports, and government reports, rather than patterns in past prices.

Forecasting prices from chart patterns, trends, volume, open interest, and mathematical indicators, on the premise that market action reflects available information.

A person or firm that, for compensation, advises others about futures or option trading or manages such trading, generally required to register with the NFA unless an exemption applies.

A person or firm that operates a pooled investment vehicle trading futures or options and solicits funds for it; registration and disclosure obligations apply unless an exemption fits.

A customer account in which a third party may place orders without prior approval for each trade; it requires the customer's written trading authorization before any trading occurs.

The deposit required to open a futures position, set by the exchange and possibly raised by the carrying broker; it is a performance bond, not a down payment on the contract.

The minimum account equity that must be kept on an open futures position. Dropping below it triggers a call to restore the account to the initial margin level.

The daily settlement process that credits or debits an account with gains and losses on open positions, computed from the prior settlement price to the current one.

A demand for additional funds, or for a reduction in positions, made when account equity falls below the maintenance margin requirement for open contracts.

The exchange-affiliated entity that becomes buyer to every seller and seller to every buyer, guaranteeing performance and handling daily settlement of gains and losses.

An order to buy or sell at the best price available as soon as possible; it assures execution but does not assure a specific price.

An order to buy at a specified price or lower, or to sell at a specified price or higher; it sets a price ceiling or floor but may never be filled.

An order that becomes a market order once a specified trigger price is reached, often used to limit losses on a position or to enter on a price breakout.

The official price determined at the close of a trading session by the exchange, used to mark positions to market and to calculate margin requirements.

The federal agency that regulates U.S. futures and option markets under the Commodity Exchange Act, reviewing contract terms and enforcing anti-fraud and market-integrity rules.

The industry self-regulatory organization for U.S. futures, responsible for registering firms and salespeople, writing conduct rules, and arbitrating customer disputes.

A firm that solicits or accepts orders for futures or options and carries customer accounts, handling margin deposits and the segregation of customer funds.

A person or firm that solicits customers or takes their orders but does not hold customer funds; it must be guaranteed by a carrying futures commission merchant.

Money deposited by futures customers that must be kept apart from the firm's own funds, held in a specially titled account, and never used to pay firm obligations.