Futures Trading Glossary

Source: National Futures Association; published here with permission. This publication (Glossary of Futures Terms - An Introduction to the Language of the Futures Industry) is the property of the National Futures Association.

Call Option
An option which gives the buyer the right, but not the obligation, to purchase ("go long") the underlying futures contract at the strike price on or before the expiration date.

Carrying Broker
A member of a futures exchange, usually a clearinghouse member, through which another firm, broker or customer chooses to clear all or some trades.

Carrying Charge
The cost of storing a physical commodity, such as grains or metals, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument. Also referred to as the Cost of Carry.

Cash Commodity
The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also referred to as Actuals.

Cash Market
A place where people buy and sell the actual commodities (i.e. grain elevator, bank etc.)
See also Forward (Cash) Contract and Spot.

Cash Settlement
A method of settling certain futures or options contracts whereby the market participants settle in cash (rather than delivery of the commodity).

Charting
The use of graphs and charts in the technical analysis of futures markets to ply prose movements, volume, open interest or other statistical indicators of price movement.
See also Technical Analysis

Churning
Excessive trading that results in the broker deriving a profit from commissions while disregarding the best interests of the customers.

Circuit Breaker
A system of trading halts and price limits on equities and derivatives markets designed to provide a cooling-off period during large, intraday market declines.

Clear
The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily market-to-market basis for its clearing members.

Clearinghouse
An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery and reporting trade data. The clearinghouse becomes the buyer to each seller (and the seller to each buyer) and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.

Clearing Member
A member of an exchange clearinghouse responsible for the financial commitments of its customers. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

Closing Price
See Settlement Price

Closing Range
A range of prices at which futures transactions took place during the close of the market.

Commission
A fee charged by a broker to a customer for executing a transaction.

Commission House
See Futures Commission Merchant.

Commodity Exchange Act (CEA)
The federal act that provides for federal regulation of futures trading.

Commodity Futures Trading Commission
The federal regulatory agency established in 1974 that administers the Commodity Exchange Act. The CFTC monitor the futures and options on futures markets in the United States.

Commodity Pool
An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. The concept is similar to a mutual fund in the securities industries. Also referred to as a Pool.

Commodity Pool Operator (CPO)
An individual or organization which operates or solicits funds for a commodity pool. A CPO is generally required to be registered with the CFTC.

Commodity Trading Advisor
A person who, for compensation or profit, directly or indirectly advises others as to the advisability of buying or selling futures or commodity options. Providing advice includes exercising trading authority over a customer's account. A CTA is generally required to be registered with the CFTC.

Confirmation Statement
A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been initiated. The statement shows the price and the number of contracts bought or sold. Sometimes combined with a Purchase and Sale Statement.

Contango
A futures market in which prices in succeeding delivery months are progressively higher. The opposite of Backwardation.

Contract Market
A board of trade designated by the CFTC to trade futures or options contracts on a particular commodity. commonly used to mean any exchange on which futures are traded. Also referred to as an Exchange.

Contract Month
The month in which delivery is to be made in accordance with the terms of the futures contract. Also referred to as Delivery Month.

Convergence
The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month.

Cost of Carry
See Carrying Charge.

Covered Option
A short call or put option position which is covered by the sale or purchase of the underlying futures contract or physical commodity.

Cross-Hedging
Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures market follow similar price trends (e.g., using soybean meal futures to hedge fish meal).

Customer Segregated Funds
See Segregated Account.

Source: National Futures Association; published here with permission. This publication (Glossary of Futures Terms - An Introduction to the Language of the Futures Industry) is the property of the National Futures Association.