Series 31 key terms

A standardized agreement to buy or sell a specified quantity of an asset at a set price on a future date, traded on an exchange and cleared through a clearinghouse.

The deposit an FCM requires to open a futures position, set by the exchange to cover potential one-day price moves; it is a performance bond, not a down payment.

The minimum account equity a customer must maintain on open futures positions; falling below it triggers a margin call to restore the account to the initial margin level.

The daily practice of revaluing open futures positions at the settlement price, crediting gains and debiting losses to the customer's account.

An entity that becomes the buyer to every seller and seller to every buyer, guaranteeing performance and settling trades for its clearing members.

The total number of futures or options contracts in a given delivery month that have been opened and not yet offset or delivered.

A market condition in which futures prices are higher than the current cash price, typically reflecting storage, insurance, and financing costs.

A market condition in which futures prices are lower than the current cash price, often caused by tight nearby supply or strong immediate demand.

The difference between a commodity's local cash price and the price of the related futures contract, calculated as cash minus futures.

Using a relatively small margin deposit to control a much larger contract value, which magnifies both potential gains and potential losses.

A commercial market participant who uses futures to reduce price risk on an existing or anticipated cash position in the underlying commodity.

A market participant who takes futures positions solely to profit from anticipated price changes, accepting risk and providing liquidity to hedgers.

Contracts that give the buyer the right, but not the obligation, to buy or sell a specific futures contract at a stated price on or before expiration.

An option contract that gives its holder the right, but not the obligation, to buy the underlying futures contract at the strike price.

An option contract that gives its holder the right, but not the obligation, to sell the underlying futures contract at the strike price.

The price an option buyer pays and an option seller receives for the rights and obligations conveyed by the option contract.

The fixed price at which an option holder may buy or sell the underlying futures contract if the option is exercised.

The action by which an option holder invokes the right to establish a long or short futures position at the strike price.

The process by which an option seller is selected to fulfill the obligation to take the opposite futures position when a buyer exercises.

The amount by which an option is in the money, equal to the difference between the strike price and the current futures price; zero if out of the money.

The portion of an option premium that exceeds intrinsic value, reflecting the remaining time to expiration and the likelihood of favorable price movement.

The seller or grantor of an option, who collects the premium and bears the obligation to perform if the buyer exercises the option.

An enterprise that pools money from multiple investors and uses it to trade futures, options, or other commodities, operated by a commodity pool operator.

A person or firm that solicits or accepts funds from investors for a commodity pool and directs the pool's trading, subject to CFTC registration and NFA rules.

A person or firm that, for compensation, advises others about futures or options trading or directly directs trading in customer accounts.

A person or firm that solicits or accepts customer futures orders but does not hold customer funds, and must be guaranteed by a futures commission merchant.

An individual associated with an FCM, IB, CPO, or CTA who solicits customers, supervises solicitation, or handles customer accounts, and must be registered.

The document a CPO or CTA must give prospective clients, describing the trading program, fees, performance, conflicts of interest, and risks.

A required table in a pool's disclosure document showing the annual percentage return the pool must earn to cover fees and expenses.

An arrangement permitting a customer to trade a nominal account size larger than the cash deposited, increasing effective leverage and risk.

The required presentation of a CTA's or pool's actual trading results, or properly labeled hypothetical results, over specified periods.

The federal agency that regulates U.S. futures and options markets under the Commodity Exchange Act, including registration and market oversight.

The self-regulatory organization for the U.S. futures industry, which enforces rules, registers firms and individuals, and administers proficiency and arbitration programs.

The process by which firms and individuals become registered with the CFTC and become NFA members before conducting futures or options business with the public.

The requirement that FCMs keep customer money in separate accounts from firm funds and use it only for authorized customer purposes.

A written notice that must be furnished to prospective futures and options customers, warning that trading involves substantial risk of loss.

A written agreement in which a futures commission merchant assumes responsibility for the futures business conducted by a guaranteed introducing broker.

An NFA rule setting standards for promotional material, requiring fair and balanced presentation of performance and prohibiting misleading or exaggerated claims.

Simulated or model trading results rather than actual trades; their use in promotional material is restricted by NFA rules and requires specific disclosures.

A written program required of futures firms to detect and report suspicious transactions, verify customer identity, and comply with anti-money-laundering laws.