Options Trading System

Glossary

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Liquidate: Liquidate (also referred to as Offset) stands for selling a previously purchased futures or options contract or to buy back a previously sold futures or options position.

Margin: Margin is an amount of money deposited by both buyers and sellers of futures contracts and by sellers of options 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 commodities is not a down payment or partial payment on a purchase, as in securities, but rather a performance bond. There are two main types of Margin: initial margin and maintenance margin. Initial margin is the amount of margin required by the broker when a futures position is opened. Maintenance margin is an amount that must be maintained on deposit at all times. In situation when the equity in a customer's account drops to or below the level of maintenance margin because of adverse price movement, the broker must issue a margin call to restore the customer's equity to the initial level. Exchanges specify levels of initial margin and maintenance margin for each futures contract, but futures commission merchants may require their customers to post margin at higher levels than those specified by the exchange. Futures margin is determined by the SPAN margining system, which takes into account all positions in a customer's portfolio.

Pit: Pit (also referred to as a ring) is the area on the trading floor where trading in futures or options contracts is conducted by open outcry. It is a specially constructed area on the trading floor of some exchanges where trading in a futures contract or option is conducted. On other exchanges, the term ring designates the trading area for commodity contract.

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