Series 31 flashcards
Series 31 · 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.
- Mark-to-market
- Daily settlement practice in which futures gains are credited and losses are debited to the margin account, preventing accumulation of unrealized losses.
- Initial margin
- Performance bond deposited to open a futures position, typically 3 to 15 percent of the contract's notional value, and not a down payment on the commodity.
- Maintenance margin
- Minimum equity level that must be held in a futures account; a shortfall triggers a margin call requiring the account to be restored to the initial margin level.
- Basis
- The cash price of a commodity minus the price of a related futures contract; changes in basis drive the realized result of a hedge.
- Contango market
- A futures market in which deferred contracts trade above the cash price, typically reflecting storage, insurance and financing costs over the carry period.
- Backwardation
- A futures market in which futures trade below the cash price, often signaling tight nearby supply; the futures curve slopes downward across delivery months.
- Short hedge
- Selling futures contracts to protect the value of inventory or anticipated production against a decline in cash prices before the commodity is sold.
- Speculative position limit
- Maximum number of contracts a trader may hold in a designated futures market, set by the CFTC or exchange; exceeding it requires an approved hedge exemption.
- Futures option
- An option whose underlying instrument is a futures contract; exercise creates a long or short futures position at the strike price and settles premium in cash.
- Call intrinsic value
- The amount by which the underlying futures price exceeds the strike price, or zero when the call is at or out of the money.
- Time value
- The option premium minus intrinsic value; it reflects the chance the option gains value before expiration and decays as expiration approaches.
- Long call breakeven
- Strike price plus the premium paid; the futures price at expiration above which the call buyer earns a profit.
- Long put breakeven
- Strike price minus the premium paid; the futures price at expiration below which the put buyer earns a profit.
- Delta
- Sensitivity of an option premium to a one-point change in the underlying futures price; calls range from 0 to +1 and puts from -1 to 0.
- American versus European
- American-style futures options may be exercised any time before expiration; European-style options may be exercised only on the expiration date.
- Uncovered option writer
- A seller of options with no offsetting futures or option position; the writer collects premium, posts margin, and carries large or unlimited risk.
- Commodity pool operator
- An entity that solicits and accepts funds for collective trading in commodity interests; it must register with the CFTC and join the NFA unless exempt.
- Commodity trading advisor
- A person who, for compensation, advises others on commodity interest trading; CFTC registration and NFA membership are required unless an exemption applies.
- De minimis CPO exemption
- Rule 4.13(a)(3) relief available when aggregate margin and option premiums do not exceed 5 percent of pool assets and notional value does not exceed 100 percent.
- Rule 4.14(a)(10) exemption
- Exempts a CTA from registration when it advised 15 or fewer clients in the preceding 12 months and does not hold itself out publicly as a CTA.
- Qualified eligible person
- An investor meeting Rule 4.7 standards, such as an accredited investor or a person owning at least $2 million in securities and other investments.
- High-water mark
- A term in an incentive fee arrangement under which the advisor is paid a share of profits only on gains above the highest prior net asset value.
- Annual pool report
- Audited financial statements and performance information that a CPO must distribute to pool participants within 90 days of the pool's fiscal year end.
- Notional value
- The contract or face value of futures and option positions, used to measure leverage and disclosed in CTA performance presentations.
- Form 7-R
- CFTC and NFA registration form filed by a firm such as a CPO, CTA, futures commission merchant or introducing broker, listing its principals and branch offices.
- Form 8-R
- Individual registration form completed by associated persons, principals and branch office managers, filed with fingerprints and a background information schedule.
- NFA Rule 2-29
- Governs sales promotional material: it must not mislead, hypothetical performance must be labeled, and results cited must be actual and current.
- NFA Rule 2-30
- Requires members to obtain essential customer information and deliver the required risk disclosure statement before opening a commodity interest account.
- Segregation of customer funds
- Commodity Exchange Act Section 4d requirement that customer money be kept separate from firm funds and never commingled with or used for proprietary trading.
- Recordkeeping period
- CFTC and NFA rules require books and records to be kept for five years, with the most recent two years readily accessible at the office.
- NFA arbitration
- Dispute resolution forum for customer claims against members; a claim must be filed within two years of the act or transaction giving rise to it.
- Associated person
- An individual who solicits customers or supervises solicitation for a registered firm, and who must be registered and act under the firm's supervision.