Futures Market Glossary

Below is an online glossary of commodity market terminology. Discover a vast wealth of information, futures and options terms and definitions.

Active Month

In the metals markets, the nearest base contract month that is not the current delivery month. The base months for each metals future are defined by each individual contract. For other contracts, this may designate the closest month to expiration or the expiration month that has the most trading volume.

Adjusted futures price

The cash-price equivalent is reflected in the current futures price. This is calculated by taking the futures price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.

American Gas Association (AGA)

American Gas Association. Major natural gas industry trade association, based in Alexandria, Virginia AGA conducts technical research and helps create standards for equipment and products involved in every facet of the natural gas industry. It also compiles statistics that are considered industry standards.

American Petroleum Institute (API)

The primary U.S. oil industry trade association, based in Washington, D.C. API conducts research and sets technical standards for industry equipment and products from wellhead to retail outlet. It also compiles statistics that are regarded as industry benchmarks.

API Gravity

The scale was created by the American Petroleum Institute to indicate the ’lightness’ or ’heaviness’ of crude oils and other liquid hydrocarbons. Calibrated in API degrees (or degrees API), it is used to expresses the relative density of oil. The scale is an inverse measure— the lighter the crude the higher the API gravity, and vice versa. The higher the API degree, the higher the market value of the hydrocarbon being measured. Oil with API greater than 30º is termed light; between 22º and 30º, medium; below 22º, heavy; and below 10º, extra heavy.


The simultaneous purchase of cash, futures, or options in one market against the sale of cash, futures, or options in a different market in order to profit from a price disparity.

As-of trade

An unmatched trade from a previous day that is resubmitted to the clearing system; trade is submitted “as of” the original trade date.


To test a metal or an oil for purity or quality.

Associated gas

Natural gas present in a crude oil reservoir, either separate from or in solution with the oil.

Associated Person (AP)

A person, commonly called a commodity broker, associated with and soliciting customers and orders for a futures commission merchant or introducing broker. The AP must pass a Series 3 examination, be licensed by the Commodity Futures Trading Commission and be a member of the National Futures Association.

Automated trading system (ATS)

Automated trading system (ATS); a trading method in which a computer makes decisions and enters orders without a person entering those orders. This is a programmatic way of representing the trader.

Back months

The futures or options on futures contracts being traded that are further from expiration that the current or “front month” contract. Also called deferred or distant months.


Market situation in which futures prices are lower in succeeding delivery months. Also known as an inverted market. The opposite of contango.


A unit of volume measure used for petroleum and refined products. 1 barrel = 42 U.S. gallons.

Barrels per Day

Barrel per day (abbreviated BPD, bbl/d, bpd, bd or b/d) is a measurement used to describe the amount of crude oil (measured in barrels) produced or consumed by an entity in one day. For example, an oil field might produce 100,000 bpd, and a country might consume 1 million bpd.

Base Metals

Copper, aluminum, lead, nickel, and tin. These metals are defined as base because they oxidize or corrode relatively easily.


The difference between the spot or cash price and the futures price of the same or a related commodity. Basis is usually computed to the near future, and may represent different time periods, product forms, qualities and locations. The local cash market price minus the price of the nearby futures contract is equal to the basis.

Basis Risk

The uncertainty as to whether the cash-futures spread will widen or narrow between the time a hedge position is implemented and liquidated.


A measured amount in which crude oil and refined product shipments are sent through a pipeline.


In reference to a Natural Gas measure of capacity or supply, a billion cubic feet.


Instrument traded on the cash market representing a debt a government entity or of a company.


The point at which an option buyer or seller experiences no loss and no profit on an option. Call breakeven equals the strike price plus the premium; put breakeven equals the strike price minus the premium.

Bretton Woods Agreement of 1944

An agreement that established fixed-rate trading bands for the world’s major foreign currencies. The agreement also provided for central bank currency market intervention and tied the price of the U.S. dollar to gold at $35 per ounce. The agreement collapsed in 1971, when President Nixon devalued the dollar and allowed the major currencies to “float” on the world market.

British thermal unit (BTU)

The amount of heat required to increase the temperature of a pound of water 1o Fahrenheit. A Btu is used as a common measure of heating value for different fuels. Prices of different fuels and their units of measure (dollars per barrel of crude, dollars per ton of coal, cents per gallon of gasoline, cents per thousand cubic feet of natural gas) can be easily compared when expressed as dollars and cents per million Btus.

Calendar spread (futures)

Also called an intra-commodity spread. The simultaneous purchase and sale of the same futures contract, but different contract months. (i.e., buying a September CME S&P 500® futures contract and selling a December CME S&P 500 futures contract).

Carrying charge

For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of funds necessary to buy the instrument.

Cash commodity

The actual physical commodity or financial instrument as distinguished from the futures contract that is based on the physical commodity or financial instrument. Also referred to as “spot.”

Cash market

A place where people buy and sell the actual commodities, i.e., grain elevator, bank, etc. Spot usually refers to a cash market price for a physical commodity that is available for immediate delivery. A forward contract is a cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

Cash settlement

A settlement method used in certain future and option contracts where, upon expiration or exercise, the buyer does not receive the underlying commodity but the associated cash position. For buyers not wishing to take actual possession of the underlying physical commodity, cash settlement is sometimes a more convenient method of transacting business. For example, the purchaser of an E-mini S&P future is unable to take ownership of the index at expiration. Therefore he simply pays or receives the difference between the purchase price and the price of S&P futures contract at settlement.

Casinghead Gas

Gas present in an oil well that is removed when it flows to the surface at the well’s casing.

Central bank

A government bank that regulates a country’s banks and manages a nation’s monetary policy. The Federal Reserve is the central bank in the United States, whereas the European Central Bank (ECB) is the central bank of the European Monetary Union.


The procedure through which Clearing House becomes the buyer to each seller of a futures contract, and the seller to each buyer, and assumes responsibility for protecting buyers and sellers from financial loss by ensuring buyer and seller performance on each contract. This is effected through the clearing process, in which transactions are matched, confirming that both the buyer’s and the seller’s trade information are in agreement.

Clearing fee

A fee charged by the exchange for each contract cleared. There are also clearing fees associated with deliveries, creation of a futures position resulting from an option exercise or assignment, Exchange for Physicals (EFP), block trades, transfer trades and adjustments.

Clearing firm

A firm approved to clear trades through Clearing House. Memberships in clearing organizations are usually held by companies. Clearing members are responsible for the financial commitments of customers that clear through their firm.


The period at the end of the trading session officially designated by the exchange during which all transactions are considered “made at the close.” Sometimes used to refer to the closing range.

CME Globex

The first global electronic trading system for futures and options has evolved to become the world’s premier marketplace for derivatives trading. With continual enhancements, the platform has effectively enabled CME, already known for innovation, to transform itself into a leading high-tech, global financial derivatives exchange.

CME Globex order types

The CME Globex platform supports a broad array of order functionality, offering convenience and flexibility to meet a variety of individual trading needs. The availability of specific order types varies based on the markets, products and trading applications.


A supply contract between a buyer and seller of a commodity, whereby the buyer is assured that he will not have to pay more than some maximum price, and whereby the seller is assured of receiving some minimum price. This is analogous to an options fence or collar, also known as a range forward.


The onetime fee charged by a broker to a customer when the customer executes a futures or option on futures trade through the brokerage firm.

Commodity code

A unique symbol used to identify a particular commodity traded on CME for purposes of submitting data into the Clearing System. This code should not be confused with the ticker symbol, which is the code denoting which commodity price is being quoted.

Commodity exchange

An exchange that lists designated futures contracts for the trading of various types of derivative products and allows use of its facilities by traders.

Commodity trading advisor (CTA)

A person who, for compensation or profit, directly or indirectly advises others as to the value or the advisability of buying or selling futures contracts or commodity options. Advising indirectly includes exercising trading authority over a customer’s account as well as providing recommendations through written publications or other media.

Consumer Price Index (CPI)

A measuring the average price of consumer goods and services purchased by U.S. households. It is one of several price indices calculated by national statistical agencies. The percent change in the CPI is a measure of inflation. The CPI can be used to index (i.e., adjust for the effects of inflation) wages, salaries, pensions, or regulated or contracted prices.

Contango Market

A market situation in which prices are higher in the succeeding delivery months than in the nearest delivery month. Opposite of backwardation.


Depending on the context in which it is used, a term of reference describing either a unit of trading in a particular futures, options or cleared product or a product approved and designated by the Board for trading or clearing pursuant to the rules of the Exchange.

Contract grades

The standard grades of commodities or instruments 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 standard called for by the exchange.

Contract size

The actual amount of a commodity represented in a futures or options contract as specified in the contract specifications.


A term referring to cash and futures prices tending to come together (i.e., the basis approaches zero) as the futures contract nears expiration.

Country risk

Risk associated with an FX (foreign exchange) transaction, referring to potential political or economic instability.


The interest rate on a debt instrument expressed in terms of a percent on an annualized basis that the issuer guarantees to pay the holder until maturity.

Crack spread

A specific spread trade involving simultaneously buying and selling contracts in crude oil and one or more derivative products, typically gasoline and heating oil. Oil refineries may trade a crack spread to hedge the price risk of their operations, while speculators attempt to profit from a change in the oil/gasoline price differential.

Credit Default Swap (CDS)

A contract between two parties specifying a payment in the event of a default of the underlying debt issue. Typically these two party agreements (buyer and seller) are created and traded in an unregulated (Over-The-Counter or OTC) environment. These are derivative contracts in that the pricing of a CDS is tied to the current market perception of the credit worthiness of the debt issuer. A CDS can be constructed on the debt issues of almost any corporation, municipality, bank, government and government agency that are rated for credit worthiness. A CDS buyer pays a premium to the seller and would receive payment from the seller if the underlying credit issue defaults or there is a change in the rating status per the terms of the individual CDS. If there is no default or rating change in the underlying debt, the seller keeps the premium. A credit default swap (CDS) is the most highly utilized type of credit derivative. Most debt holders want to keep the loan in place so they can continue to receive the regular interest and principal payments; but since bond holders are typically very risk averse investors, they are willing to pay a premium to be sure they continue to get paid even if the borrower has a hard time making the payments. CDS contracts are perfect for this, since they are designed to transfer a given risk from one party to another without transferring the underlying bond or other credit asset. It is important to note, however, that a CDS is not insurance. Since a CDS is not insurance, sellers of CDS’s are not subject to the reserve requirements nor the government regulations required by insurance companies to ensure there is enough money to pay off in the case of default.

Credit Derivative

A credit derivative is a contractual agreement designed to shift credit risk between parties. Originally used primarily by banks to hedge and diversify the credit risk of their customers in the event they could not pay back their loans. In most basic terms, a credit default swap is similar to an insurance contract, providing the buyer, usually a debt holder, with protection against the borrower not repaying the debt.

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 markets follow similar price trends (e.g., using soybean meal futures to hedge fish meal).

Cross rate

The exchange rate between two currencies, in which the home country’s currency is not included. In the U.S., the Euro/Yen rate would be considered a cross rate, while in Europe or Japan it would be considered a primary pair.

Crude Oil

A mixture of hydrocarbons that exists as a liquid in natural underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities. Crude is the raw material which is refined into gasoline, heating oil, jet fuel, propane, petrochemicals, and other products.

Cubic Foot

The most common measure of gas volume, referring to the amount of gas needed to fill a volume of one cubic foot at 14.73 pounds per square inch absolute pressure and 60 degrees Fahrenheit. One cubic foot of natural gas contains, on average, 1,027 Btus.

Currency risk

The potential for a shift in exchange rates, which would be detrimental to a trader’s position.

Current yield

A term used frequently in bond transactions. Current yield is computed by dividing the annual amount of interest by the price paid for the bond or security. If the security is purchased at a discount from the par or principal value, the current yield with be higher than the stated interest or coupon rate.

Cushion Gas

The amount of gas required in a storage pool to maintain sufficient pressure to keep the working gas recoverable.

Daily trading limits

The maximum price range permitted a contract during one trading session. Trading limits are set by the exchange for certain contracts.

Day order

An order to buy or sell a contract during that trading day only. Session/Day orders that have been placed but not executed during regular trading hours (RTH) do not carry over to the next trade date. Similarly, Session/Day orders placed during electronic trading hours (ETH) are only executed for that trade date

Day trading

Establishing a position or multiple positions and then offsetting them within the same day, ending the day with no established position in the market.


The term has distinct meaning when used in connection with futures contracts. Delivery generally refers to the changing of ownership or control of a commodity under specific terms and procedures established by the exchange upon which the contract is traded. Typically, except for energy, the commodity must be placed in an approved warehouse, precious metals depository, or other storage facility, 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 usually is preceded by a notice of intention to deliver. After receipt of the delivery instrument, the new owner typically can 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 or for cash, or can take delivery of the physical himself. The procedure differs for energy contracts. Bona fide buyers or sellers of the underlying energy commodity can stand for delivery. If a buyer or seller stands for delivery, the contract is held through the termination of trading. The buyer and seller each file a notice of intent to make or take delivery with their respective clearing members who file them with the Exchange. Buyers and sellers are randomly matched by the Exchange. The delivery payment is based on the contract’s final settlement price. Some futures contracts, such as stock index futures, are cash settled.


The measure of the price-change relationship between an option and the underlying futures price. Equal to the change in premium divided by the change in futures price.


The quantity of a commodity that buyers are willing to purchase in the market at a given price.


Decline in the value of one currency relative to another. Occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.


A financial instrument whose value is based upon other financial instruments, such as a stock index, interest rates or commodity indexes.

Diesel Fuel

Distillate fuel oil used in compression-ignition engines. It is similar to home heating oil, but must meet a cetane number specification of 40 or more.


Price differences between classes, grades, and delivery locations of various stocks of the same commodity.


(1) The amount a price would be reduced to purchase a commodity of lesser grade; (2) sometimes used to refer to the price difference between futures of different delivery months, as in the phrase “July is trading at a discount to May”, indicating that the price of the July futures contract is lower than that of May; (3) applied to cash grain prices that are below the futures price.

Discount rate

The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank.

Distillate Fuel Oil

Products of refinery distillation sometimes referred to as middle distillates; kerosene, diesel fuel, and home heating oil.


A Petroleum industry term referring to commercial oil and gas operations beyond the production phase; oil refining and marketing, and natural gas transmission and distribution.

Electronic trading

Computerized system for placing orders, bid and offer posting, and trade execution. The CME Globex platform is an example of an electronic trading system.


Any occurrence or circumstance listed below which, in the opinion of the Exchange, requires immediate action and threatens or may threaten fair and orderly trading, clearing, delivery or liquidation of any contracts on the Exchange. Occurrences and circumstances which the Exchange may deem emergencies are set forth in the Rules.

Equilibrium price

The price at which the quantity demanded of a commodity is equal to the quantity supplied.


(1) Instrument traded on the cash market representing a share in the capital of a company; (2) The net value of a commodity account as determined by combining the ledger balance with an unrealized gain or loss in open positions as marked to the market.

Euribor (euro interbank offered rate)

The average interest rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another prime bank.

Excess margin

The dollar amount by which the equity exceeds the margin requirements in a performance bond account.

Exchange Certified Stocks

Stocks of commodities held in depositories or warehouses certified by an Exchange-approved inspection authority as constituting good delivery against a futures contract position. Current total certified stocks are reported in the press for many important commodities such as Gold, Silver and Platinum.

Exchange of Futures for Cash

A transaction in which the buyer of a cash commodity transfers to the seller a corresponding amount of long futures contracts, or receives from the seller a corresponding amount of short futures, at a price difference mutually agreed upon. In this way, the opposite hedges in futures of both parties are closed out simultaneously.

Exchange traded funds

Shares issued by financial institutions that allow participants to trade benchmark indexes like a stock.


The last day of trading for a futures contract. The last day on which an option may be exercised and exchanged for the underlying contract.

Extrinsic value

The amount of money option buyers are willing to pay for an option in the anticipation that, over time, a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option’s intrinsic value can be considered time value.

Fair Value (Futures)

Most frequently used in reference to a stock index futures contract price being in equilibrium to the underlying cash index. The equilibrium to the futures price would be the spot price after considering compounded interest (and dividends not received due to being long the futures contract rather than the physical stocks) over a period of time.

Federal funds

In the United States, federal funds are bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions. Transactions in the federal funds market enable depository institutions with reserve balances in excess of reserve requirements to lend reserves to institutions with reserve deficiencies. These loans are usually made for 1 day only, i.e. “overnight.” The interest rate at which the funds are lent is called the federal funds rate.

Federal funds rate

The rate of interest charged for the use of federal funds. See federal funds.

Federal Reserve System (Fed)

The central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (part private, part government) banking system composed of (1) the presidentially-appointed Board of Governors of the Federal Reserve System in Washington, D.C.; (2) the Federal Open Market Committee; (3) 12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury. The current Federal Reserve Chairman is Dr. Ben S. Bernanke.

Financial Information Exchange (FIX)

An electronic communications protocol developed to provide a uniform method of exchanging real-time information specifically related to financial transactions.

Foreign Exchange Market (FX)

The exchange of one currency for another. Markets exist in over-the-counter, forward and FX Futures where buyers and sellers conduct foreign exchange transactions. CME® FX futures offer financial institutions, investment managers, corporations and private investors ways manage the risks associated with currency rate fluctuation and to take advantage of profit opportunities stemming from changes in currency rates.

Forward contract

A private, cash-market agreement between a buyer and seller for the future delivery of a commodity at an agreed price. In contrast to futures contracts, forward contracts are not standardized and not transferable.

Fuel Oil

Refined petroleum products used as a fuel for home heating and industrial and utility boilers. Fuel oil is divided into two broad categories, distillate fuel oil, also known as No. 2 fuel, gasoil, or diesel fuel; and residual fuel oil, also known as No. 6 fuel, or outside the United States, just as fuel oil. No. 2 fuel is a light oil used for home heating, in compression ignition engines, and in light industrial applications. No. 6 oil is a heavy fuel used in large commercial, industrial, and electric utility boilers.


Standardized contracts for the purchase and sale of financial instruments or physical commodities for future delivery on a regulated commodity futures exchange.

Futures commission merchant (FCM)

An individual or organization which solicits or accepts orders to buy or sell futures or options on futures contracts and accepts money or other assets from customer in connection with such orders. An FCM must be registered with the CFTC.

Futures contract

A legally binding agreement to buy or sell a commodity or financial instrument at a later date pursuant to the Rules of the Exchange.


A term frequently used with reference to speculative position limits for options on futures contracts. The futures-equivalent of an options position is the number of options multiplied by the previous day’s risk factor or delta for the options series. For example, 10 deep out-of-the money options with a risk factor of 0.20 would be considered two futures-equivalent contracts. The delta or risk factors used for this purpose is the same as that used in delta-based margining and risk analysis systems.

Futures exchange

A board of trade designated by the Commodity Futures Trading Commission to trade futures or option contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded. CME Group including all its divisions.

Futures Industry Association (FIA)

Futures Industry Association. A national not-for-profit futures industry trade association that represents the brokerage community on industry, regulatory, political, and educational issues.

Grade 1 Copper

Copper which is good for delivery against the COMEX Division high grade copper futures contract and meets the ASTM specification B115-91.

Gross Domestic Product

One of the ways of measuring the size of the economy. GDP is defined as the total market value of all final goods and services produced within a country in a given period of time (usually a calendar year).

Gross margining

A method by which a clearing firm’s customer margins are based on the firm’s positions and applicable submitted spreads. For example, if a firm had only two accounts for two customers in its customer origin and one of those accounts had three open long positions and the other had two open short positions, the firm’s margin would be based on five open positions if the firm did not submit spreads (rather than one net long position).

Gross position

The sum of a clearing firm’s current open positions in a given contract.

Gross processing margin

Refers to the difference between the cost of a commodity and the combined sales income of the finished products which result from processing the commodity. Various industries have formulas to express the relationship of raw material costs to sales income from finished products. One example would be the difference between the cost of soybeans and the combined sales income of the processed soybean oil and meal.


In determining whether assets meet capital requirements, a percentage reduction in the stated value of assets. In computing the worth of assets deposited as performance bond, a reduction from market value.

Hallmark (Precious Metals)

A stamped impression on the surface of a precious metals bar that indicates the producer, serial number, weight, and purity of metal content.

Heating Oil

No. 2 fuel oil, a distillate fuel oil used either for domestic heating or in moderate capacity commercial-industrial burners.

Heavy Crude

Crude oil with a high specific gravity and a low API gravity due to the presence of a high proportion of heavy hydrocarbon fractions.


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 involves simultaneous, opposite positions in the cash market and futures market.

Hedge Ratio

Ratio of the value of futures contracts purchased or sold to the value of the cash commodity being hedged, a computation necessary to minimize basis risk. 2) The ratio, determined by an option’s delta, of futures to options required to establish a riskless position. For example, if a $1/barrel change in the underlying Oil futures price leads to a $0.25/barrel change in the options premium, the hedge ratio is four (four options for each futures contract).


Taking a position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change; (2) A purchase or sale of futures as a temporary substitute for a cash transaction which will occur later. See long hedge and short hedge.

Historical volatility

The volatility of a financial instrument based on historical returns. This phrase is used particularly when it is wished to distinguish between the actual volatility of an instrument in the past, and the current volatility implied by the market.

Implied volatility

The volatility implied by the market price of the option based on an option pricing model. In other words, it is the volatility that, given a particular pricing model, yields a theoretical value for the option equal to the current market price.


An indicator that is representative of a whole market or market segment, usually computed by a sum product of a list of instruments’ current prices and a list of weights assigned to these instruments. The index variations give trends of the market/market segment measured.

Indicative Opening Price (IOP)

CME Indicative Opening Price. Calculated in real-time during pre-opening phase, each time an order is entered / modified / cancelled. Maximizes the quantities to be traded while minimizing the non-executed quantities.


An economic term describing conditions in which overall prices for goods and services are rising.

Initial performance bond

The minimum deposit a clearing firm must require from customers for each contract, when an account is new or when the account’s equity falls below minimum maintenance requirements required by the

Interbank rates

The price that major banks quote each other for currency transactions.

Intrinsic value

The relationship of an option’s in-the-money strike price to the current futures price. For a put: strike price minus futures price. For a call: futures price minus strike price.

Introducing broker (IB)

A firm or individual that solicits and accepts orders to buy or sell futures or options on futures contracts from customers but does not accept money or other assets from such customers. An IB must be registered with the CFTC.

Key reversal

A chart formation that signals a reversal of the current trend. In an uptrend, the market must open above the previous day’s close, make a new high for the trend and then close below the previous day’s low. In a downtrend, the market must open below the previous day’s close, make a new low for the trend and then close higher than the previous day’s high. Key reversals on days of high volume are given more weight than others.

Lagging indicators

Market indicators showing the general direction of the economy and confirming or denying the trend rather than predicting its direction as implied by the leading indicators. Also referred to as concurrent indicators.

Leading indicators

Market indicators that signal the state of the economy for the coming months. Some of the leading indicators include: average manufacturing workweek, initial claims for unemployment insurance, orders for consumer goods and material, percentage of companies reporting slower deliveries, change in manufacturers’ unfilled orders for durable goods, plant and equipment orders, new building permits, index of consumer expectations, change in material prices, prices of stocks, change in money supply.

Lead month

The most current contract month in which delivery may take place in physically delivered contracts or in which cash settlement may take place in cash-settled contracts.


The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.

Light Crude

Crude oil with a low specific gravity and high API gravity due to the presence of a high proportion of light hydrocarbon fractions.

Liquefied Natural Gas (LNG)

Natural gas which has been made liquid by reducing its temperature to minus 258 degrees Fahrenheit at atmospheric pressure. Its volume is 1/600 of gas in vapor form.

Liquefied Petroleum Gas (LPG)

Propane, butane, or propane-butane mixtures derived from crude oil refining or natural gas fractionation. For convenience of transportation, these gases are liquefied through pressurization.


A characteristic of a security or commodity market with enough units outstanding to allow large transactions without a substantial change in price. Institutional investors are inclined to seek out liquid investments so that their trading activity will not influence the market price.


A condition that describes the ability to execute orders of any size quickly and efficiently without a substantial affect on the price. Institutional investors are inclined to seek out liquid investments so that their trading activity will not influence the market price.

Liquidity data bank

A computerized profile of CBOT market activity, used by technical traders to analyze price trends and develop trading strategies. There is a specialized display of daily volume data and time distribution of prices for every commodity traded on the Chicago Board of Trade.

Loan program

A federal program in which the government lends money at preannounced rates to farmers and allows them to use the crops they plant for the upcoming crop year as collateral. Default on these loans is the primary method by which the government acquires stock of agricultural commodities.

London Inter-bank Offered Rate (LIBOR)

The price at which short term deposits are traded among major banks in London. Basically, the interest rate that banks charge each other for loans (usually in Eurodollars). The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.


A unit of trading (used to describe a designated number of contracts). For example, a trade quantity of one equals a “one lot;” a trade quantity of four equals a “four lot.” Also called cars.

Maintenance performance bond

The minimum equity that must be maintained for each contract in a customer’s account subsequent to deposit of the initial performance bond. If the equity drops below this level, a deposit must be made to bring the account back to the initial performance bond level.

Managed futures

The term managed futures describes an industry comprised of professional money managers know as commodity trading advisors (CTAs). These trading advisors manage client assets on a discretionary basis using global futures markets as an investment medium. Trading advisors take positions based on expected profit potential. All CTAs involved must be registered with the Commodity Futures Trading Commission (CFTC), a US government regulatory agency. While many casual observers most closely associate managed futures and Commodity Trading Advisors with trend following, the reality is that the strategies and approaches within managed futures vary tremendously, and that the one common unifying these is that these managers trade highly liquid, exchange-traded instruments and deep foreign exchange markets. As a result, the terms many fund managers choose to implement, including lock-ups, gates, side pockets, and penalties for early redemptions, rarely apply to investments in managed futures. Liquidity and transparency also simplify risk management, and investing via separately managed accounts, a common practice among managed futures investors, mitigates the risk of fraud since investors retain custody of assets.

Market maker

A firm or person with trading privileges on an exchange who has an obligation to buy when there is an excess of sell orders and to sell when there is an excess of buy orders. In the futures industry, this term is sometimes loosely used to refer to a floor trader or local who, in speculating for his own account, provides a market for commercial users of the market.


To debit or credit on a daily basis a margin account based on the close of that day’s trading session. In this way, buyers and sellers are protected against the possibility of contract default.


Period within which a futures contract can be settled by delivery of the actual commodity; the period between the first notice day and the last trading day of a commodity futures contract.

Maximum price fluctuation

The maximum amount the contract price can change up or down during one trading session, as stipulated by exchange rules.

Million British Thermal Units (MMBtu)

Approximately equal to a thousand cubic feet (Mcf) of natural gas. Also know as Dekatherm.

Minimum price fluctuation

The smallest increment of price movement possible in trading a given contract often referred to as a tick. The minimum unit by which the price of a commodity can fluctuate, as established by the Exchange.

Money supply

The amount of money in the economy, consisting primarily of currency in circulation plus deposits in banks: M-1 U.S. money supply consisting of currency held by the public, traveler’s checks, checking account funds, NOW and super- NOW accounts, automatic transfer service accounts, and balances in credit unions. M-2 U.S. money supply consisting M-1 plus savings and small time deposits (less than $100,000) at depository institutions, overnight repurchase agreements at commercial banks, and money market mutual fund accounts. M-3 U.S. money supply consisting of M-2 plus large time deposits ($100,000 or more) at depository institutions, repurchase agreements with maturities longer than one day at commercial banks, and institutional money market accounts.

Natural Gas Liquids (NGL)

A general term for all liquid products separated from natural gas in a gas processing plant. NGLs include propane, butane, ethane, and natural gasoline.

Negative yield curve

A chart in which the yield level is plot on the vertical axis and the term to maturity of debt instruments of similar creditworthiness is plotted on the horizontal axis. The yield curve is positive when long-term rates are higher than short-term rates. However, the yield curve is referred to as negative or inverted as short term rates begin to rise above longer term ones.

Nominal Price

The declared price for a futures month sometimes used in place of a closing price when no recent trading has taken place in that particular delivery month; usually an average of the bid and asked prices.

Open interest

The total number of futures contracts long or short in a delivery month or market that has been entered into and not yet offset or fulfilled by delivery Also known as Open Contracts or Open Commitments. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.

Open market operation

The buying and selling of government securities Treasury bills, notes, and bonds by the Federal Reserve.

Option contract

A contract that gives the bearer the right, but not the obligation, to be long or short a futures contract at a specified price within a specified time period. The specified price is called the strike price. The futures contract that the long may establish by exercising the option is referred to as the underlying futures contract.

Over the Counter (OTC) Market

A market in which custom-tailored contracts such as stocks and foreign currencies are bought and sold between counterparties and are not exchange traded.

Par Grade

The grade or grades specified in a given futures contract for delivery. A contract may permit substitutions for and deviations from the par grade subject to specified premiums or discounts. Also know as Basis Grade.

Partner clearinghouse

The term “Partner Clearinghouse” means a derivatives clearing organization or a clearinghouse which has agreed to act in concert with the Exchange to facilitate clearance of Security Futures Products as defined herein. A Partner Clearinghouse shall be considered a Clearing Member for purposes of the Rules except to the extent otherwise provided in an agreement between the Exchange and the Partner Clearinghouse.


An intermediate chemical derived from petroleum, hydrocarbon liquids, or natural gas, such as ethylene, propylene, benzene, toluene, and xylene.


A generic name for hydrocarbons, including crude oil, natural gas liquids, refined, and product derivatives.


(1) The price paid by the purchaser of an option to the grantor (seller);(2) The amount by which a cash commodity price trades over a futures price or another cash commodity price.

Price limit

The maximum daily price fluctuations on a futures contract during any one session, as determined by the Exchange. (Also known as limit).

Price transparency

Market prices that are universally available in real time, where all market participants have equal access to the same markets and prices at the same time. This facilitates a fair and anonymous trading environment where the best bid and best offer have priority. A level playing field.

Primary dealer

A designation given by the Federal Reserve System to commercial banks or broker/dealers who meet specific criteria. Among the criteria are capital requirements and meaningful participation in the Treasury auctions.

Primary market

(1) For producers, their major purchaser of commodities; (2) in commercial marketing channels, an important center at which spot commodities are concentrated for shipment to terminal markets; and (3) to processors, the market that is the major supplier of their commodity needs.

Primary Stocks (Energy)

Stocks of crude oil or refined products held in storage at leases, refineries, natural gas processing plants, pipelines, tankfarms, and bulk terminals that can store at least 50,000 barrels of refined products.

Producer Price Index (PPI)

A measure of the average change in prices received by domestic producers for their output. Most of the data is collected through a systematic sampling of producers in manufacturing, mining, and service industries, and is published monthly by the Bureau of Labor Statistics.


A market reaction resulting in an upward movement of prices. The opposite of a decline.

Ratio spread

This strategy, which applies to both puts and calls, involves buying or selling options at one strike price in greater number than those bought or sold at another strike price.

Reference price

The price of future contract used as “reference” e.g., for determining an opening price, starting an algorithm, or figuring into an index; is usually the settlement price or last closing price.


A company that acts as a wholesaler of gasoline, heating oil, or other products which operates its own refinery; may also retail and buy additional supplies to supplement its own refining output.

Residual Fuel Oil

Heavy fuel oil produced from the residue in the fractional distillation process rather than from the distilled fractions.


(1)The possibility of loss. (2) The dollar difference between the current price and the price at which the liquidation of open positions would occur. (3) The portion of the performance bond requirement associated with the likely worst case change in value from one day to the next.


As pertaining to an existing futures position, exiting your current delivery month and entering the next expiring month. For example, if long a December contract, offsetting that position (by selling) and entering a postion in the next expiration (by buying).


A completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase. A round turn counts both the buy and the sell as one event. In a typical exchange volume measurement, a one-contract trade would be counted as one round turn (i.e., single event, same trade, different customers). From the customer’s perspective, a round turn represents two filled orders from his or her brokerage firm – one to take a position and one to offset that position (i.e., same customer, different trades).


To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, usually within seconds.

Secondary market

Market where previously issued securities are bought and sold.

Selling climax

An extraordinarily high volume occurring suddenly in a downtrend, signaling the end of the trend.

Selling hedge or short hedge

Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold. The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes.

Serial options

Options for months for which there are no futures contracts. The underlying futures contract for a serial option month would be the next nearby futures contract.

Settlement price

The official daily closing price of futures and options on futures contracts, as determined in accordance with Rule 813, used by the Clearing House for marking all open positions at the close of the daily settlement cycle.


A Seek Limit order has a price limit automatically assigned (up to the fifth best price level) to the order when sent and seeks to fill the entire quantity. Available only on CME Globex Trader.

Short hedge

The sale of a futures contract in anticipation of a later cash market sale. Used to eliminate or minimize the possible decline in value of ownership of an approximately equal amount of the cash financial instrument or physical commodity. See hedge.

Short-term interest rates

Interest rates on loan contracts–or debt instruments such as Treasury bills, bank certificates of deposit, or commercial paper–having maturities of less than one year. Often called money market rates.

Side-by-side trading

Where a single futures contract trades in two locations at the same time. Usually on a trading floor via open outcry as well as on an electronic trading platform.

Single-stock futures (SSF)

OneChicago, LLC is a joint venture created by Chicago Mercantile Exchange® (CME), Chicago Board of Options Exchange® (CBOE), and Chicago Board of Trade® (CBOT), to trade single stock futures (SSF) and narrow-based stock indexes.

Sour or Sweet Crude

Industry terms which denote the relative degree of a given crude oil’s sulfur content. Sour crude refers to those crudes with a comparatively high sulfur content, 0.5% by weight and above; sweet refers to those crudes with sulfur content of less than 0.5%.

Spark Spread

The spark spread reflects the costs or anticipated costs of producing power from a specific facility. It can be used as a method of converting millions of Btus to megawatt hours and vice versa, and thus relates well to the electricity and natural gas futures contracts. The spread is simply the heat rate (a proxy for efficiency) of a specific generating unit or power system (the number of Btus needed to make one kilowatt hour of electricity), multiplied by the cost of energy expressed as dollars per British thermal units (Btus). For example, if it takes 10,000 Btus to make one kilowatt hour of electricity, the formula can be simplified by multiplying the price per million Btus (MMBtu) by 10 to equate one MMBtu of natural gas to one megawatt hour (Mwh) of electricity. The usefulness of the spread evaluation is dependent on the market price for power which reflects the relationship of the supply and demand for power, not the efficiencies of the generating units. Other costs affecting the price of power using the spark spread evaluation include those of gas transportation, power transmission, plant operations and maintenance, and fixed costs. Because the electricity futures contract is specified in lots of 736 megawatt hours, and the natural gas futures contracts are specified in units of 10,000 million Btus, one power contract equates to 0.736 natural gas contracts.


1) Contract terms specified by the Exchange. 2) Term referring to the properties of a given crude oil or refined petroleum product, which are “specified” since they often vary widely even within the same grade of product. In the normal process of negotiation, seller will guarantee buyer that the product or crude to be sold will meet certain specified limits. Generally, the major properties of oil that are guaranteed are API gravity, sulfur, pour point, viscosity, and BS&W.

Specific Gravity

The ratio of the density of a substance at 60 degrees Fahrenheit to the density of water at the same temperature.


An individual who accepts market risk in an attempt to profit from buying and selling futures and/or options contracts by correctly anticipating future price movements.

Spot market

The market in which cash transactions for the physical commodity occurs — (cattle, currencies, stocks, etc.) are bought and sold for cash and delivered immediately.


The price difference between two contracts. Holding a long and a short position in two or more related futures or options on futures contracts, with the objective of profiting from a change in the price relationship.

Standard deviation

A representation of the risk associated with a financial instrument (stocks, bonds, etc.) or a portfolio of investments. The larger the standard deviation in a given period, the greater implied risk. Risk is an important factor in determining how to efficiently manage investments and understanding the standard deviation gives investors a statistical basis for their decisions.

Stock index

A statistic reflecting the composite value of a selected group of stocks. How a particular stock index tracks the overall market depends on the sampling of stocks, the weighing of individual stocks, and the method of averaging used to establish the index. Many indexes are used to benchmark the performance of portfolios such as mutual funds.

Strike price

The terms “exercise price”, “strike price” and “striking price” shall be synonymous and mean the price at which the futures contract underlying the options contract will be assigned upon exercise of the option. For options contracts which are exercised into multiple futures contracts, the exercise price represents the spread price differential between the futures contracts.

Swap (OTC)

A custom-tailored, individually negotiated transaction designed to manage financial risk, usually over a period of one to 12 years. Swaps can be conducted directly by two counterparties, or through a third party such as a bank or brokerage house. The writer of the swap, such as a bank or brokerage house, may elect to assume the risk itself, or manage its own market exposure on an exchange. Swap transactions include interest rate swaps, currency swaps, and price swaps for commodities, including energy and metals. In a typical commodity or price swap, parties exchange payments based on changes in the price of a commodity or a market index, while fixing the price they effectively pay for the physical commodity. The transaction enables each party to manage exposure to commodity prices or index values. Settlements are usually made in cash.


Simultaneous purchase and sale of currencies or interest rate products in spot and forward market transactions.

Theoretical Value

An option’s value generated by a mathematical model given certain prior assumptions about the term of the option, the characteristics of the underlying futures contract, and prevailing interest rates.


The measure of the change in an option’s premium given a change in the option’s time until expiration. Equal to the change in the option’s premium divided by the change in time to expiration.

Throughput (Energy)

1) A term used to describe the total volume of raw materials that are processed by a plant such as an oil refinery in a given period. 2) The total volume of crude oil and refined products that are handled by a tank farm, pipeline, or terminal loading facility.

Time value

The amount by which an option’s premium exceeds its intrinsic value. Usually relative to the time remaining before the option expires.

Treasury Bill

A Treasury bill is a short-term U.S. government obligation with an original maturity of one year or less. Unlike a bond or note, a bill does not pay a semi-annual, fixed rate coupon. A bill is typically issued at a price below its par value and is therefore a discounted instrument. The level of the discount depends on the level of prevailing interest rates. In general, the higher short-term interest rates are, the greater the discount. The return to an investor in bills is simply the difference between the issue price and par value.

Treasury Bond

Government-debt security with a coupon and original maturity of more than 10 years. Interest is paid semiannually.

Treasury Note

Government-debt security with a coupon and original maturity of one to 10 years.

Underlying futures contract

The futures contract that may be purchased (in the case of a call) or sold (in the case of a put upon the exercise of the option.


The measure of the change in an option’s premium for a 1% change in the volatility of the underlying futures contract. Equal to the change in premium divided by 1% change in volatility.

Vertical spread

Buying and selling puts or calls of the same expiration month but having different strike prices.


A measurement of the change in price over a given time period.


The number of contracts in futures or options on futures transacted during a specified period of time.

Warrant (Metals)

A document of title issued by a warehouse or depository for a specific lot of stored metal that meets the specifications of the corresponding Exchange metals futures contract. Metal that is “on warrant” is eligible for delivery against a short position on the Exchange.

West Texas Intermediate (WTI)

A grade of crude oil deliverable against the New York Mercantile Exchange light, sweet crude oil contract. Nominally, the benchmark crude of the U.S. oil industry.

Wire house

An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as “commission house” or Futures Commission Merchant (FCM).


1) A measure of the annual return on an investment expressed as a percentage. 2) The proportion of heavy or light products which can be derived from a given barrel of crude oil.

Yield change

One day’s change in the futures’ interest rate – equal and opposite to change in the settlement price.

Yield curve

A chart that graphically depicts the yields of different maturity bonds of the same credit quality and type. Yield is depicted on the vertical axis and maturity on the horizontal axis. A normal yield curve is upward sloping, with short-term rates lower than long-term rates. An inverted yield curve is downward sloping, with short-term rates higher than long-term rates. A flat yield curve occurs when short-term rates are the same  as long-term rates.


The rate of return an investor receives if a fixed-income security is held to maturity.

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