Return to table of contents
Call Option The buyer of a call option acquires the right but not the obligation to purchase a particular futures contract at a stated price on or before a particular date.
Commission A fee charged by a broker to a customer for performance of a specific duty, such as the buying or selling of futures contracts.
Futures Contract A legally binding agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are standardized according to the quality, quantity and delivery time and location for each commodity.
Hedging The practice of offsetting the price risk inherent in any cash market position by taking the opposite position in the futures market. Hedgers use the market to protect their businesses from adverse price changes.
Leverage The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.
Liquidity (Liquid Market) A broadly traded market where buying and selling can be accomplished with small price changes and bid and offer price spreads are narrow.
Long One who has bought futures contracts or owns a cash commodity.
Margin An amount of money deposited by both buyers and sellers of futures contracts and by sellers of option contracts to ensure performance of the terms of the contract (the making or taking delivery of the commodity or the cancellation of the position by a subsequent offsetting trade). Margin in futures is not a down payment, as in securities, but rather a performance bond.
Offset To take a second futures or options position opposite to the initial or opening position.
Option Contract A contract which gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity at a specific price within a specified period of time. The seller of the option has the obligation to sell the commodity or futures contract or buy it from the option buyer at the exercise price if the option is exercised.
Option Premium The price a buyer pays for an option. Premiums are arrived at through open competition between buyers and sellers on the trading floor of the exchange.
Position Limit The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange where the contract is traded.
Price Limit The maximum advance or decline from the previous day’s settlement price permitted for a futures contract in one trading session.
Put Option An option that gives the option buyer the right but not the obligation to sell the underlying futures contract at a partciular price on or before a particular date.
Short One who has sold futures contracts or the cash commodity.
Speculator One who tries to profit from buying and selling futures and options contracts by anticipating future price movements.
Spot Usually refers to a cash market price for a physical commodity that is available for immediate delivery.
Spreading The simultaneous buying and selling of two related markets in the expectation that a profit will be made when the position is offset.
Strike Price The price at which the buyer of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract.
The Commodity Futures Trading Commission requires that brokers provide their customers with specific risk disclosure statements prior to the opening of an account. This brochure is in no way intended to serve as a substitute for those statements.
Past performance is not necessarily indicative of future results and the risk of loss does exist in futures trading.
Free $45 Futures Investor Kit - Click Here
Includes : Charts, Market Information, Informative News Articles, Market Alerts,
Exchange Brochures, Managed Futures Information, and much more!!