Glossary of Day Trading terms and definitions.

After-Hours Trading

Stock trading when the major stock exchanges are closed.

Aggregation

The principle under which all futures positions owned or controlled by one trader (or group of traders acting in concert) are combined to determine reporting status and compliance with speculative limits.

Allowances

The discounts (premiums) allowed for grades or locations of a commodity lower (higher) than the par (or basis) grade or location specified in the futures contract.

Analyst

Someone typically working for a brokerage house, who publishes buy/hold/sell recommendations and earnings forecasts for a stock. Buy side analysts work for institutional buyers, and sell side analysts work for brokerages.

At-the-Market

An order to buy or sell a futures contract at whatever price is obtainable when the order reaches the trading floor. Also called a Market Order.

At-the-Money

When an option’s exercise price is the same as the current trading price of the underlying commodity, the option is at-the-money.

Average Daily Volume

Average number of shares traded per day over a specified period.

Back Months

Those futures delivery months with expiration or delivery dates furthest into the future; futures delivery months other than the spot or nearby delivery month.

Backpricing

Fixing the price of a commodity for which the commitment to purchase has been made in advance. The buyer can fix the price relative to any monthly or periodic delivery using the futures markets.

Bar Chart

A type of chart which consists of four significant points: the high and low prices, which form bar, the opening price, which is markets with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.

Basis

The difference between the spot or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity. Basis is usually computed in relation to the futures contract next to expire and may reflect different time periods, product forms, qualities, or locations.

Basis Grade

The grade of a commodity used as the standard or par grade of a futures contract.

Bear

One who expects a decline in prices. The opposite of a “bull.” A news item is considered bearish if it is expected to result in lower prices.

Bear Market

A market in which prices are declining.

Bear Spread

The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation does not materialize. In agricultural products, this is accomplished by selling a nearby delivery and buying a deferred delivery.

Bear Vertical Spread

A strategy employed when an investor expects a decline in a commodity price but at the same time seeks to limit the potential loss if this expectation is not realized. This spread requires the simultaneous purchase and sale of options of the same class and expiration date but different strike prices. For example, if call options are spread, the purchased option must have a higher exercise price than option that is sold.

Break

A rapid and sharp price decline.

Broker

A person paid a fee or commission for executing buy or sell orders for a customer. In commodity futures trading, the term may refer to: (1) Floor Broker—a person who actually executes orders on the trading floor of an exchange; (2) Account Executive, Associated Person, registered Commodity Representative or Customer’s Man—the person who deals with customers in the offices of futures commission merchants; or (3) the Futures Commission Merchant.

Broker Association

Two or more exchange members who (1) share responsibility for executing customer orders; (2) have access to each other’s unfilled customer orders as a result of common employment or other types of relationships; or (3) share profits or losses associated with their brokerage or trading activity.

Bulge

A rapid advance in prices.

Bull

One who expects a rise in prices. The opposite of “bear.” A news item is considered bullish if it portends higher prices.

Bull Market

A market in which prices are rising.

Bull Spread

The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a rise in prices but at the same time limiting the potential loss if this expectation is wrong. In agricultural commodities, this is accomplished by buying the nearby delivery and selling the deferred.

Bull Vertical Spread

A strategy used when an investor expects that the price of a commodity will go up but at the same time seeks to limit the potential loss should this judgment be in error. This strategy involves the simultaneous purchasernand sale of options of the same class and expiration date but different strike prices. For example, if call options are spread, the purchased option must have a lower exercise or strike price than the sold option.

Buoyant

A market in which prices have a tendency to rise easily with a considerable show of strength.

Butterfly Spread

A three-legged spread in futures or options. In the option spread, the options have the same expiration date but differ in strike prices. For example, a butterfly spread in soybean call options might consist of two short calls at a $6.00 strike price, one long call at a $6.50 strike price, and one long call at a $5.50 strike price.

Buy (or Sell) On Close

To buy (or sell) at the end of the trading session within the closing price range

Buy (or Sell) On Opening

To buy (or sell) at the beginning of a trading sessionwithin the open price range.

Buy Side Analyst

Analyst working for mutual fund or other institutional investor.

Buyer

A market participant who takes a long futures position or buys an option. An option buyer is also called a taker, holder, or owner.

Buyer\'s Market

A condition of the market in which there is an abundance of goods available and hence buyers can afford to be selective and may be able to buy at less than the price that previously prevailed.

Buying Hedge (or Long Hedge)

Hedging transaction in which futures contracts are bought to protect against possible increases in the cost of commodities.

Call Option

A contract that entitles the buyer/taker to buy a fixed quantity of commodity at a stipulated basis or striking price at any time up to the expiration of the option. The buyer pays a premium to the seller/grantor for this contract. A call option is bought with the expectation of a rise in prices.

Call Rule

An exchange regulation under which an official bid price for a cash commodity is competitively established at the close of each day’s trading. It holds until the next opening of the exchange.

Candlestick Chart

A chart that indicates the trading range for the day as well as the opening and closing price. If the opening and closing price. If the open price is higher than the close price, the rectangle between the pen and close price is shaded. If the close price is higher than the open price, that areas of the chart is not shaded.

Capping

Effecting commodity or security transactions shortly prior to an option’s expiration date depressing or preventing a rise in the price of the commodity or security so that previously written call options will expire worthless and the premium the writer received will be protected.

Carrying Broker

A member of a commodity exchange, usually a futures commission merchant, through whom another broker or customer elects to clear all or part of its trades.

Carrying Charges

Cost of storing a physical commodity or holding a financial instrument over a period of time. Includes insurance, storage, and interest on the invested funds as well as other incidental costs. It is a carrying charge market when there are higher futures prices for each successive contract maturity. If the carrying charge is adequate to reimburse the holder, it is called a “full charge.”

Cash Commodity

The physical or actual commodity as distinguished from the futures contract. Sometimes called Spot Commodity or Actuals.

Cash Market

The market for the cash commodity (as contrasted to a futures contract), taking the form of: (1) an organized, self-regulated central market (e.g., a commodity exchange); (2) a decentralized over-the-counter market; or (3) a local organization, such as a grain elevator or meat processor, which provides a market for a small region.

Cash Price

The price in the marketplace for actual cash or spot commodities to be delivered via customary market channels.

Cash Settlement

A method of settling certain futures or option contracts whereby the seller (or short) pays the buyer (or long) the cash value of the commodity traded according to a procedure specified in the contract.

Charting

The use of graphs and charts in the technical analysis of futures markets to plot trends of price movements, average movements of price, volume or trading and open interest.

Chartist

An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as a Technical Trader.

Chartists

Technical trader who reacts to signals derived from graphs of price movements.

Chooser Option

An option which is transacted in the present but which at some prespecified future date is chosen to be either a put or a call option.

Close, The

The period at the end of the trading session, officially designated by the exchange, during which all transactions are considered made “at the close.”

Commodity Futures Trading Commission (CFTC)

The Federal regulatory agency established by the CFTC Act of 1974 to administer the Commodity Exchange Act.

Commodity Price Index

Index or average, which may be weighted, of selected commodity prices, intended to be representative of the markets in general or a specific subset of commodities (for example, grains or livestock).

Commodity Trading Advisor (CTA)

Individuals or firms that, for pay, issue analyses or reports concerning commodities, including the advisability of trading in commodity futures or options.

Congestion

(1) A market situation in which shorts attempting to cover their positions are unable to find an adequate supply of contracts provided by longs willing to liquidate or by new sellers willing to enter the market, except at sharply higher prices; (2) in technical analysis, a period of time characterized by repetitious and limited price fluctuations.

Contract

(1) A term of reference describing a unit of trading for a commodity future or option; (2) An agreement to buy or sell a specified commodity, detailing the amount and grade of the product and the date on which the contract will matureand become deliverable.

Contract Grades

Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.

Contract Market

(1) A board of trade or exchange designated by the Commodity Futures Trading Commission to trade futures or options under the CommodityExchange Act; (2) Sometimes the futures contract itself (e.g., corn is a contract market).

Contract Unit

The actual amount of a commodity represented in a contract.

Conversion

When trading options on futures contracts, a position created by selling a call option, buying a put option, and buying the underlying futures contract, where the options have the same strike price and the same expiration.

Counter-Trend Trading

In technical analysis, the method by which a trader takes a position contrary to the current market direction in anticipation of a change in that direction.

Covered Option

A short call or put option position which is covered by the sale or purchase of the underlying futures contract or physical commodity. For example, in the case of options on futures contracts, a covered call is a short call positioncombined with a long futures position. A covered put is a short put position combined with a short futures position.

Cross Trading

Offsetting or noncompetitive match of the buy order of one customer against the sell order of another, a practice that is permissible only when executed in accordance with the Commodity Exchange Act, CFTC regulations, and rules of the contract market.

Cross-Hedge

Hedging a cash market position in a futures contract for a different but price-related commodity.

Crush Spread

In the soybean futures market, the simultaneous purchase of soybean futures and the sale of soybean meal and soybean oil futures to establish a processing margin.

Current Delivery Month

The futures contract which matures and becomes deliverable during the present month. Also called Spot Month.

Day Order

An order that expires automatically at the end of each day’s trading session. There may be a day order with time contingency. For example, an “off at a specific time” order is an order that remains in force until the specified time during the session is reached. At such time, the order is automatically canceled.

Day Traders

Commodity traders, generally members of the exchange on the trading floor, who take positions in commodities and then offset them prior to theclose of trading on the same trading day.

Day Trading

Establishing and offsetting the same futures market position within one day.

Default

Failure to perform on a futures contract as required by exchange rules,such as failure to meet a margin call, or to make or take delivery.

Delivery Date

The date on which the commodity or instrument of delivery must be delivered to fulfill the terms of a contract.

Delivery Month

The specified month within which a futures contract matures and can be settled by delivery.

Dominant Future

That future having the largest number of open contracts.

Ease Off

A minor and/or slow decline in the price of a market.

Expiration Date

The date on which an option contract automatically expires; the last day an option can be exercised.

Fill or Kill Order

An order which demands immediate execution or cancellation.

Floor Trader

An exchange member who executes his own trades by being personally present in the pit for futures trading.

Fundamental Analysis

Study of basic, underlying factors which will affect the supply and demand of the commodity being traded in futures contracts.

Futures Contract

An agreement to purchase or sell a commodity for delivery in the future: (1) at a price that is determined at initiation of the contract; (2) whichobligates each party to the contract to fulfill the contract at the specified price; (3) which is used to assume or shift price risk; and (4) which may be satisfied by delivery or offset.

Futures Price

(1) Commonly held to mean the price of a commodity for future delivery that is traded on a futures exchange. (2) The price of any futures contract.

Globex

An international electronic trading system for futures and options that allows participating exchanges to list their products for trading after the close of the exchanges’ open outcry trading hours. Developed by Reuters Limited for user by the Chicago Mercantile Exchange (CME), Globex was launched on June 25, 1992, for certain CME contracts. Various MATIF (Marche a Terme International de France) contracts began trading on the system on March 15, 1993.

Introducing Broker (or IB)

Any person (other than a person registered as an“associated person” of a futures commission merchant) who is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on an exchange who does not accept any money, securities, or property to margin, guarantee, or secure any trades or contracts that result therefrom.

Inverted Market

A futures market in which the nearer months are selling at prices higher than the more distant months; a market displaying “inverse carryingcharges,” characteristic of markets with supply shortages.

Limit (Up or Down)

The maximum price advance or decline from the previous day’s settlement price permitted during one trading session, as fixed by the rules of an exchange.

Limit Move

A price that has advanced or declined the permissible limit during one trading session, as fixed by the rules of a contract market.

Limit Only

The definite price stated by a customer to a broker restricting the execution of an order to buy for not more than, or to sell for not less than, the stated price.

Limit Order

An order in which the customer specifies a price limit or other condition, such as time of an order, as contrasted with a market order which implies that the order should be filled as soon as possible.

Long

(1) One who has bought a futures contract to establish a market position; (2) a market position which obligates the holder to take delivery; (3) one who owns an inventory of commodities.

Margin

The amount of money or collateral deposited by a customer with his broker, by a broker with a clearing member, or by a clearing member with the clearinghouse, for the purpose of insuring the broker or clearinghouse against loss on open futures contracts. The margin is not partial payment on a purchase.

Margin Call

(1) A request from a brokerage firm to a customer to bring margin deposits up to initial levels; (2) a request by the clearinghouse to a clearing member to make a deposit of original margin, or a daily or intra-day variation payment, because of adverse price movement, based on positions carried by the clearing member.

Market Order

An order to buy or sell a futures contract at whatever price is obtainable at the time it is entered in the ring or pit.

Market-if-Touched (MIT) Order

An order that becomes a market order when aparticular price is reached. A sell MIT is placed above the market; a buy MIT is placed below the market. Also referred to as a board order.

Market-on-Close

An order to buy or sell at the end of the trading session at a price within the closing range of prices.

Market-on-Opening

An order to buy or sell at the beginning of the trading session at a price within the opening range of prices.

Naked Option

The sale of a call or put option without holding an offsetting position in the underlying commodity.

NOB Spread

Note Against Bond. A futures spread trade involving the buying (selling) of a Treasury note futures contract and the selling (buying) of a Treasury bond futures contract.

Opening Price (or Range)

The price (or price range) recorded during the period designated by the exchange as the official opening.

Opening, The:

The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made “at the opening.”

Option

(1) A commodity option is a unilateral contract which gives the buyer the right to buy or sell a specified quantity of a commodity at a specific price within a specified period of time, regardless of the market price of that commodity. (2) A term sometimes erroneously applied to a futures contract. It may refer to a specific delivery month, as the “July Option.”

Option Buyer

The person who buys calls, puts, or any combination of calls and puts.

Option Grantor

The person who originates an option contract by promising to perform a certain obligation in return for the price of the option. Also known as Option Writer.

Pit

A specially constructed arena on the trading floor of some exchanges where trading in a futures contract is conducted. On other exchanges the term “ring” designates the trading area for a commodity.

Position

An interest in the market, either long or short, in the form of one or more open contracts. Also, “in position” refers to a commodity located where it can readily be moved to another point or delivered on a futures contract. Commodities not so situated are “out of position.” Soybeans in Mississippi are out of position for delivery in Chicago, but in position for export shipment from the Gulf.

Position Limit

The maximum position, either net long or net short, in one commodity future (or option) or in all futures (or options) of one commodity combined which may be held or controlled by one person as prescribed by an exchange and/or by the CFTC.

Position Trader

A commodity trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from the day trader, who will normally initiate and offset a futures position within a single trading session.

Put Option

An option to sell a specified amount of a commodity at an agreed price and time at any time until the expiration of the option. A put option is purchased to protect against a fall in price. The buyer pays a premium to the seller/grantor of this option. The buyer has the right to sell the commodity or enter into a short position in the futures market if the option is exercised.

Puts

Option contracts which give the holder the right but not the obligation to sell a specified quantity of a particular commodity or other interest at a given price (the “strike price”) prior to or on a future date. Also called “put option,” they will have a higher (lower) value the lower (higher) the current market value of the underlying article is relative to the strike price.

Rally

An upward movement of prices. Same as Recovery.

Range

The difference between the high and low price of a commodity during a given period.

Resistance

In technical trading, a price area where new selling will emerge to dampen a continued rise.

Resting Order

An order to buy at a price below or to sell at a price above the prevailing market that is being held by a floor broker. Such orders may either be day orders or open orders.

Retracement

A reversal within a major price trend.

Reversal

A change of direction in prices.

Risk/Reward Ratio

The relationship between the probability of loss and profit. This ratio is often used as a basis for trade selection or comparison.

Roll-Over

A trading procedure involving the shift of one month of a straddle into another future month while holding the other contract month. The shift can take place in either the long or short straddle month. The term also applies to lifting a near futures position and re-establishing it in a more deferred delivery month.

Round Turn

A completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

Scalper

A speculator on the trading floor of an exchange who buys and sells rapidly, with small profits or losses, holding his positions for only a short time during a trading session. Typically, a scalper will stand ready to buy at a fraction below the last transaction price and to sell at a fraction above, thus creating market liquidity.

Scalping

The practice of trading in and out of the market on very small price fluctuations. A person who engages in this practice is known as a scalper.

Seller’s Market

A condition of the market in which there is a scarcity of goods available and hence sellers can obtain better conditions of sale or higher prices.

Seller’s Option

The right of a seller to select, within the limits prescribed by a contract, the quality of the commodity delivered and the time and place of delivery.

Short

(1) The selling side of an open futures contract; (2) a trader whose net position in the futures market shows an excess of open sales over open purchases.

Short Selling

Selling a futures contract with the idea of delivering on it or offsetting it at a later date.

Spread (or Straddle)

The purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market against the sale of the commodity in another market, to take advantage of a profit from a change in price relationships. The term spread is also used to refer to the difference between the price of a futures month and the price of another month of the same commodity. A spread can also apply to options.

Squeeze

A market situation in which the lack of supplies tends to force shorts to cover their positions by offset at higher prices.

Stop Limit Order

A stop limit order is an order that goes into force as soon as there is a trade at the specified price. The order, however, can only be filled at the stop limit price or better.

Stop Order

This is an order that becomes a market order when a particular price level is reached. A sell stop is placed below the market, a buy stop is placed above the market. Sometimes referred to as Stop Loss Order.

Stop-Close-Only Order

A stop order which can only be executed, if possible, during the closing period of the market.

Support

In technical analysis, a price area where new buying is likely to come in and stem any decline.

Taker

The buyer of an option contract.

Technical Analysis

An approach to forecasting commodity prices which examines patterns of price change, rates of change, and changes in volume of trading and open interest, without regard to underlying fundamental market factors.

Tick

Refers to a minimum change in price up or down.

Trade Option

A commodity option transaction in which the taker is reasonably believed by the writer to be engaged in business involving use of that commodity or a related commodity.

Trader

(1) A merchant involved in cash commodities; (2) a professional speculator who trades for his own account.

Transferable Option (or Contract)

A contract which permits a position in the option market to be offset by a transaction on the opposite side of the market in the same contract.

Trend

The general direction, either upward or downward, in which prices have been moving.

Trendline

In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the trendline is called bullish; if down, it is called bearish.