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Actuals - The physical or cash commodity, as distinguished from commodity futures contracts.

Afloat - Commodities in harbor or in transit in vessels.

Aggregation - The policy under which all futures positions owned or controlled by one trader or a group of traders are combined to determine reporting status and speculative limit compliance.

Amortize - An artificial method of allocating over the life of the instrument, income received or given up at maturity.

Arbitrage - The simultaneous purchase and sale of identical or equivalent financial instruments or commodity futures in order to benefit from a discrepancy in their price relationship. 

Arbitrageur - One who engages in arbitrage.

Arbitration - The process of settling disputes between members or between members and customers. NFA's arbitration program provides a forum for resolving futures-related disputes.

Associated Person (AP) - An individual who solicits orders, customers, or customer funds on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor, a Commodity Pool Operator or a Leverage Transaction Merchant who is registered with the Commodity Futures Trading Commission.

Ask - Also called "offer". Indicates a willingness to sell a futures contract at a given price. 

At-The-Money - An option whose strike price is equal - or approximately equal - to the current market price of the underlying futures contract.

Back Months  - The futures or options on futures months being traded that are furthest from expiration. 

Backwardation - A market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month.

BANs - Bond anticipation notes issued by state and local governments prior to the issue of bonds to even out cash flow.

Basis - The difference between a cash price at a specific location and the price of a particular futures contract.  Cash Price minus Futures Price = Basis.

Basis Point - Measurement of a change in the yield of a security. One basis point equals 1/100 of one percent.

Bear - An individual who believes prices will move lower. 

Bear Market - A market in which prices are declining. 

Bearer Security - A security which promises to pay the holder of the security on demand.

Beta - A statistic generated through regression analysis of stock returns that compares the price sensitivity of a single stock or small group of stocks in relation to a larger group or index of stocks. If, for example, the stock of AT&T has a beta of 0.85 in relation to the MMI, it would be expected to fluctuate at the rate of 85 percent of the fluctuation for the index.

Bid - The price that the market participants are willing to pay. 

Board of Trade - See Contract Market.

Bond Indenture - Legal statement enumerating duties of the issuer and rights of the holder.

Book Entry - A security transaction that is completed by a credit and debit to the seller's and buyer's books, correspondingly, for the security and is reversed for money transfer. The actual security may exist as a piece of paper in a centralized clearing house, or its existence may be limited to an entry on the computer of the Treasury.

Break-Even Point - The futures price at which a given option strategy is neither profitable nor unprofitable. For call options it is the strike price plus the premium. For put options it is the strike price minus the premium.

Broker - (1) A person paid a fee or commission for acting as an agent in making contracts, sales or purchases; (2) when used as floor broker, it refers to the person who actually executes someone else's trading orders on the trading floor of an exchange; (3) when used as account executive, it refers to the person who deals with customers and their orders in commission-house offices. See also Registered Commodity Representative.

Brokerage - A fee charged by a broker for execution of a transaction; an amount per transaction or a percentage of the total value of the transaction; usually referred to as a commission fee.

Bucket, Bucketing - Illegal practice of accepting orders to buy or sell without executing such orders, and the illegal use of the customer's principal - margin deposit - without disclosing the fact of such use.

Bull - An individual who expects prices to rise. 

Bull Market - A market in which prices are rising. 

Buy On Close - To buy at the end of a trading session at a price within the closing range. 

Buy On Opening - To buy at the start of a trading session at a price within the opening range. 

Buyer - The purchaser of an option, either a call option or a put. The buyer may also be referred to as the option holder. Option buyer's receive the right, but not the obligation, to assume a futures market position.

Buy-In - (1) A purchase to cover a previous sale, often called short covering. See also Cover. (2) A method of compensation for failure to deliver in the cash bond market.

Buying Hedge (or Long Hedge) - Buying futures contracts to prevent against possible increased cost of commodities that will be needed in the future. See also Hedging.

Cabinet Trade - A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick. 

Call - (1) A period in which the price for each futures contract is established, i.e. an opening or closing call; (2) Buyer's Call - A purchase of a specified quantity of a specific grade of a commodity at a fixed number of points above or below a specified delivery month in futures, with the buyer being allowed a certain period of time within which to fix the price by either purchasing a futures contract for the account of the seller, or indicating to the seller when he wishes to fix price; (3) Seller's Call - Same as the buyer's call except that the seller has the right to determine the time to fix price.

Call Date - Date upon which issuer can exercise a call feature. See also Call Feature.

Call Feature - An option on the part of the issuer to redeem a bond issue prior to
maturity at a predetermined price.

Call Option - An option to buy a commodity, security or futures contract at a specified price anytime between now and the expiration date of the option contract. 

Call Price - Price at which a bond issue can be called, usually at par or a slight premium.

Carry - The cost of financing (borrowing to buy) a position in financial instruments.

Carry (Negative) - The condition in which the cost of financing (the short-term rate of interest) is more than the return on the instrument.

Carry (Positive) - The condition in which the cost of financing (the short-term rate of interest) is less than the return on the instrument.

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

Carrying Charges - (1) Those costs incurred in warehousing the physical commodity, generally including interest, insurance and storage; (2) Full Carrying Charge Market - A situation in the futures market when the price difference between delivery months reflects the full costs of interest, insurance and storage.

Carry-Over - That part of current supplies of a commodity comprised of stocks from previous production/marketing seasons.

Cash Commodity - The actual physical commodity as distinguished from a futures commodity. 

Cash Market - A market in which transactions for purchase and sale of the physical commodity are made under whatever terms are agreeable to buyer and seller and are legal under law and the rules of the market organization, if such exist. Cash Market can refer to an organized, self-regulated central market, such as the cash grain sections of commodity exchanges that also have futures contract trading, or such as the central stockyards in the livestock industry. It can also refer to an over-the-counter type of market, in which buyers, sellers, and/or dealers compete in decentralized locations, possibly under rules of an organized association. In still other uses, the term may refer to other methods of purchasing and selling the physical commodity as are prevalent in the industries using that commodity.

Cash Settlement - Transaction in which securities are delivered versus federal funds on the same day the transaction is made.

Charting - The use of graphs and charts in the technical analysis of futures markets to plot price 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 customer.

Certified Stock - Stocks of a commodity that have been inspected and found to be of a quality deliverable against futures contracts, stored at the delivery points designated as regular or acceptable for delivery by the commodity exchange.

Certificate of Deposit (CD) - A time deposit with a specific maturity evidenced by a certificate. Large-denomination CDs are typically negotiable.

Cheap - Colloquialism implying that a security is under priced.

C.I.F. - Cost, insurance and freight paid to port of destination.

Class of Options - All call options, or all put options, exercisable for the same underlying futures contract and which expire on the same expiration date.

Clearing - The procedure through which trades are checked for accuracy after which the clearinghouse or association becomes the buyer to each seller of a futures contract, and the seller to each buyer.

Clearinghouse - An agency connected with a commodity exchange through which all futures contracts are reconciled, settled, guaranteed and later either offset, or fulfilled through delivery of the commodity and through which financial settlement is made. It may be a fully chartered separate corporation, rather than a division of the exchange itself.

Clearing Member - A member of an exchange clearinghouse. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

Close - The period at the end of the trading session. 

Closing Range  - The high and low prices, or bids and offers, recorded during the period designated as the official close. 

Closing Transaction - A purchase or sale that liquidates (offsets) an existing position. That is, selling an option that was previously purchased or buying back an option which was previously sold.

CME - The Chicago Mercantile Exchange.

Commercial Paper - Un-secured promissory notes of corporations, 270 days or less in length, usually sold on a discount basis.

Commission (or Round Turn)  - The one-time fee charged by a broker to a customer when a futures or options on futures position is liquidated either by offset or delivery. 

Commission Merchant - One who makes a trade, either for another member of the exchange or for a non-member client, but who makes the trade in his own name and becomes liable as principal to the other.

Commitment - An agreement to lend money at a future date to a borrower.

Commodity (as defined by CFTC) - Specifically enumerated agricultural commodities - all other goods and articles (except onions) - and all services, rights and interests in which contracts for future delivery are presently, or in the future may be, dealt in.

Commodity Credit Corporation (CCC) - A wholly government-owned corporation established in 1933 to assist U.S. agriculture. The major operations are price support programs in which the CCC purchases excess supplies of commodities and provides assistance in foreign exports of agricultural commodities.

Commodity Exchange Act - The federal act that provides for federal regulation of futures trading.

Commodity Exchange Center (CEC) - The location of five New York futures exchanges: Commodity Exchange, Inc. (COMEX), the New York Mercantile Exchange (NYMEX), the New York Cotton Exchange, the Coffee, Sugar and Cocoa Exchange (CSC), and the New York Futures Exchange (NYFE).

CFTC - The Commodity Futures Trading Commission as created by the Commodity Futures Trading Commission Act of 1974. This government agency currently regulates the nation's commodity futures industry. 

Commodity Pool - An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts or commodity options.

Commodity Pool Operator (CPO) - An individual or organization which operates or solicits funds for a commodity pool. Generally required to be registered with the Commodity Futures Trading Commission.

Commodity Representative - See Registered Commodity Representative.

Commodity Trading Advisor (CTA) - A person who, for compensation or profit, directly or indirectly advises others as the value of or advisability of buying or selling futures contracts or commodity options. Providing advice indirectly includes exercising trading authority over a customer's account. Registration with the Commodity Futures Trading Commission is generally required.

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 number of contracts bought or sold and the prices at which the contracts were bought or sold. Sometimes combined with a Purchase and sale statement.

Contango - A market condition in which futures prices are higher in the distant delivery months.

Contract - The unit of trading in commodity futures. A futures contract specifies the exact grade, amount, and month of delivery of the commodity.

Contract Grades - Standards or grades of commodities listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the contract grade.

Contract Market - A board of trade designated by the Commodity Futures Trading Commission to trade futures or options contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded.

Contract Month - The month in which delivery is to be made in accordance with a futures contract.

Contract Unit - The actual amount of a commodity stipulated for delivery against a given futures contract.

Conventional Loan - Mortgage loan without a government guarantee or insurance.

Convergence - The tendency of futures prices to approach cash market values as contracts near expiration.

Coupon - A Fixed dollar amount, payable per annum, stated as a percentage of principal value, usually payable in semiannual installments.

Cover - To offset a previous futures transaction with an equal and opposite transaction. "Short-Covering" is a purchase of futures contracts to cover an earlier sale of an equal number of the same delivery month; "Liquidation" is the sale of futures contracts to offset the obligation to take delivery of an equal number of futures contracts of the same delivery month purchased earlier.

Crack Spread - a type of commodity product spreading involving the purchase of crude oil futures and the sale of gasoline and heating oil futures.

Crush Spread - a type of commodity product spreading involving the purchase of soybean futures and the sale of soybean meal and soybean oil futures.

Current Delivery (Month) - The futures contract that will come to maturity and become deliverable during the current month; also called a Spot Month.

Current Yield - The amount of money received (currently) divided by the instrument purchase price.

Dated Date - The date from which interest begins to accrue on a new bond issue.

Day Order - Orders that expire at the close of a day's trading. If not filled during that trading day, they are withdrawn.

Day Trading - Refers to establishing and liquidating the same position or positions within one day's trading, thus ending the day with no established position in the market. 

Dealer - Individual or firm in cash market who acts as principal in transactions. The dealer maintains an inventory of securities from which he draws upon in sales and adds to in purchases.

Dealer Option - A put or call on a physical commodity, not originating on or subject to the rules of an exchange, written by a firm which deals in the underlying cash commodity.

Debenture - A debt instrument whose backing lies in the goodwill of the issuer rather than on any tangible assets.

Default - (1) In reference to the federal farm loan program, the decision on the part of a producer of commodities not to repay the government loan, but instead to surrender his crops; (2) in futures markets, the theoretical failure of a party to a futures contract to either make or take delivery of the physical commodity as required under the contract.

Deferred Delivery - The more distant months in which futures trading is taking place, as distinguished from the nearby futures delivery months.

Delivery - This common word has unique connotations when used in connection with futures contracts. Basically, in such usage, delivery refers to the changing of ownership or control of a commodity under very specific terms and procedures established by the exchange upon which the contract is traded. Typically, the commodity must be placed in an approved warehouse, on-track boxcar, or bank, and be inspected by approved personnel, after which the facility issues a warehouse receipt, shipping certificate, demand certificate, or due bill, which becomes a transferable delivery instrument. Delivery of the instrument typically must be preceded by a Notice of Intention to Deliver, commonly made two days before delivery of the instrument. After receipt of the delivery instrument, the new owner typically can arrange with the storage facility to take possession of the physical commodity, can deliver the delivery instrument into the futures market in satisfaction of a short position, or can sell the delivery instrument to another market participant who can use it for delivery into the futures market in satisfaction of his short position for cash.

Delivery Points - Those locations and facilities designated by a commodity exchange at which stocks of a commodity may be delivered in fulfillment of a contract, under procedures established by the exchange.

Differentials - Price differences between classes, grades and locations of different stocks of the same commodity.

Disclosure Document - The document that must be provided to and signed by prospective customers that describes fees, performance, etc.

Disclosure Statement - The statement required by the Commodity Futures Trading Commission that enumerates the risk involved in trading futures and/or options on futures.

Discount - (1) A downward adjustment in price allowed for delivery of stocks of a commodity of lesser than contract grade against a futures contract; (2) sometimes used to refer to the price differences between futures of different delivery months, as in the phrase "July at a discount to May" indicating that the price of the July future is lower than that of May.

Discount Basis - Method of quoting securities wherein the price is expressed as an annualized discount from maturity value. For example, a note which borrows $.981/1.00 today, and repays the full loan ($1.00/$1.00) in 90 days, would sell at a discount of 8 percent (360/90 x 2%). The quote would be 92(100-8).

Discount Bond - A bond selling below par; a "Pure" Discount Bond is one without coupon and always sells below par. See also Discount Basis.

Discount Rate - Rate of interest charged by the Federal Reserve to member banks that borrow from it.

Discretionary Account - An arrangement by which the holder of the account gives written power of attorney to another, often his broker, to make buying and selling decisions without notification to the holder; often required to as a Managed Account or Controlled Account.

Disintermediation - The process wherein moneys are withdrawn from financial intermediaries (e.g., the banking system). The instigation for this process may be non-competitive returns offered by the intermediary, uncertainty or a variety of other reasons, resulting in a shrinkage in credit for the system as a whole.

Dollar Bonds - A type of municipal revenue bond whose price quotes are given in dollars (e.g., 91 or 105) instead of a yield basis.

Dutch Auction - Method of sale whereby the lowest price at which the entire issue can be sold is established as the uniform price for the entire issue.

Exercise at Strike Price - The price at which the holder (buyer) may purchase or sell the underlying futures contract upon the exercise of an option (See Strike Price)

Expiration Date - The last day that an option may be exercised into the underlying futures contract. Also, the last day of trading for a futures contract. 

Flat - when a trader has no open positions.  Either a purchase or a sale has offset a previous position in the market.

Floor Broker  - An exchange member who is paid a fee for executing orders for Clearing Members or their customers. A Floor Broker executing orders must be licensed by the CFTC. 

Floor Trader - An exchange member who generally trades only for his/her own account or for an account controlled by him/her. Also referred to as a "local." 

Futures - A term used to designate all contracts covering the purchase and sale of financial instruments or physical commodities for future delivery on a commodity futures exchange. 

Futures Commission Merchant  - A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection with solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades or contracts. The FCM must be licensed by the CFTC. 

Hedge - The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Usually it involves opposite positions in the cash market and futures market at the same time. (See long hedge, short hedge.) 

Holder - One who purchases an option. 

Initial Performance Bond - The funds required when a futures position (or a short options on futures position) is opened. (Previously referred to as Initial Margin) 

Intrinsic Value - the value of an option measured by the difference between the strike price and the market price of the underlying futures contract when the option is "in-the-money." 

Limit Order - An order given to a broker by a customer that specifies a price; the order can be executed only if the market reaches or betters that price. 

Limit Price - (See maximum price fluctuation.) 

Liquidation - Any transaction that offsets or closes out a long or short futures position. 

Liquidity - refers to a market which allows quick and easy entry or exit a price close to the last traded price.  The ability to liquidate or establish a position quickly is due to a large number of traders willing to buy and sell in a particular commodity market.

Long - One who has bought a futures or options on futures contract to establish a market position through an offsetting sale; the opposite of short. 

Long Hedge - The purchase of a futures contract in anticipation of an actual purchase in the cash market. Used by processors or exporters as protection against and advance in the cash price. (See hedge, short hedge.) 

Margin - (See Performance Bond) 

Margin Call - (See Performance Bond Call)

Maintenance  Margin - A sum, usually smaller than--but part of--the initial performance bond, which must be maintained on deposit in the customer's account at all times. If a customer's equity in any futures position drops to, or under, the maintenance performance bond level, a "performance bond call" is issued for the amount of money required to restore the customer's equity in the account to the initial margin level. 

Mark-To-Market  - The daily adjustment of margin accounts to reflect profits and losses. 

Market Order - An order for immediate execution given to a broker to buy or sell at the best obtainable price. 

Maximum Price Fluctuation -The maximum amount the contract price can change, up or down, during one trading session, as stipulated by Exchange rules. 

Minimum Price Fluctuation - Smallest increment of price movement possible in trading a given contract, often referred to as a "tick." 

MIT Order - Market-If-Touched. A price order that automatically becomes a market order if the price is reached. 

National Futures Association (NFA) - Authorized by Congress in 1974 and designated by the CFTC in 1982 as a "registered futures association," NFA is the industry-wide self-regulatory organization of the futures industry.

Nearby - The nearest active trading month of a futures or options on futures contract. Also referred to as "lead month." 

Offer - Also called "ask". Indicates a willingness to sell a futures contract at a given price. (See bid.) 

Offset  - Selling if one has bought, or buying if one has sold, a futures or options on futures contract. 

Open Interest - Total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery. An indicator of the depth or liquidity of a market (the ability to buy or sell at or near a given price) and of the use of a market for risk- and/or asset-management. 

Open Order - An order to a broker that is good until it is canceled or executed. 

Open Outcry - Method of public auction for making verbal offers in the trading pits or rings of commodity exchanges.

Opening - The period at the beginning of the trading session during which all transactions are considered made or first transactions were completed. 

Opening Price Range - The range of prices at which the first bids and offers were made or first transactions were completed. 

Option  - A contract giving the holder the right, but not the obligation, hence, "option," to buy (call option) or sell (put option) a futures contract in a given commodity at a specified price at any time between now and the expiration of the option contract. 
 
Performance Bond  (Also Known As Margin) - Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole. 

Performance Bond Call (Also Known As Margin Call) - A demand for additional funds because of adverse price movement. 

Premium  - 1) The excess of one futures contract price over that of another, or over the cash market price. 2) The amount agreed upon between the purchaser and seller for the purchase or sale of a futures option -- purchasers pay the premium and sellers (writers) receive the premium. 

Put  - An option to sell a commodity (go short), security, or futures contract at a specified price at any time between now and the expiration of the option contract. 

Pyramiding - purchasing additional contracts with the profits earned on open positions.  This is a very risky strategy.

Rally- An upward movement of prices following a decline; the opposite of a reaction. 

Range - The high and low prices or high and low bids and offers, recorded during a specified time. 

Reaction - A decline in prices following an advance. The opposite of rally. 

Registered Representative - A person employed by, and soliciting business for, a commission house or Futures Commission Merchant. 

Round-Turn  - Procedure by which a long or short position is offset by an opposite transaction or by accepting or making delivery of the actual financial instrument or physical commodity. 

Scalp  - To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, usually within the same day, hour or even just a few minutes. 

Segregated Account - A special account used to hold and separate customers' assets from those of the broker or firm.

Settlement Price - A figure determined by the closing range that is used to calculate gains and losses in futures market accounts. Settlement prices are used to determine gains, losses, margin calls, and invoice prices for deliveries. (See closing range.) 

Short  - One who has sold a futures contract to establish a market position and who has not yet closed out this position through an offsetting purchase; the opposite of long. 

Short Hedge - The sale of a futures contract in anticipation of a later cash market sale. Used to eliminate or lessen the possible decline in value of ownership of an approximately equal amount of the cash financial instrument or physical commodity. (See hedge, long hedge.) 

Speculator - One who attempts to anticipate price changes and, through buying and selling futures contracts, aims to make profits; does not use the futures market in connection with the production, processing, marketing or handling of a product. The speculator has no interest in making or taking delivery. 

Spread - The simultaneous purchase and sale of futures contracts for the same commodity or instrument for delivery in different months, or in different but related markets. A spreader is not concerned with the direction in which the market moves, but only with the difference between the prices of each contract. 

Spot - Refers to the characteristic of being available for immediate (or nearly immediate) delivery.  Also refers to the cash market price of a specific commodity.

Stop Order - An order to buy or sell at the market when and if a specified price is reached. 

Strike Price - the specified price at which an options contract may be exercised.  If the buyer of the option exercises, the futures contract position(s) will be entered at the strike price.

Tick  - Refers to a change in price, either up or down.

Time Value - Any amount by which an option premium exceeds the option's intrinsic value. If an option has no intrinsic value, its premium is made up entirely of time value.

Trend  - The general direction of the market. 

Volume - The number of transactions in a futures or options on futures contract made during a specified period of time. 

Volatile Market - a market which is often subject to wide price fluctuations.  This volatility is usually due to a lack of liquidity (Sometimes referred to as a Wicked Market).

Wash Sales - an illegal process in which simultaneous purchases and sales are made in the same commodity futures contract, on the same exchange, and in the same month.  No actual position is taken, although it appears that trades have been made.

Writer - An individual who sells an option.

Statements, facts, data, and information contained herein are gathered from various sources and are believed to be reliable. However, Commodity Investors Group cannot guarantee it's accuracy, timeliness, or completeness. No responsibility is assumed with respect to any such statements, facts, data or information. Trading commodity futures involves risk and sometimes these risks may be substantial.  Only risk capital should be used. The use of options and options trading also involves a high degree of risk.  The use of stops may not limit losses to intended amounts.  Past performance is not necessarily indicative of future results. You should be fully aware of the risks before entering into commodity and/or options trading. CIG, Inc. is registered with the CFTC and a member of the National Futures Association.