Glossary

Margin

See Also:

Broker: Broker is a company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public. A broker charges a fee or commission for executing buy or sell orders for a customer. In commodity futures trading, the term may refer to:
a) a Floor broker, a person who actually executes orders on the trading floor of an exchange;
b) an Account executive or associated person, the person who deals with customers in the offices of futures commission merchants;
c) the futures commission merchant.

Buyer: Buyer is a market participant (trader/investor) who takes a long futures position or buys an option. An option buyer is also called a taker, holder, or owner.

Call: There are three meaning of the "Call" term. It could be:
1) An option contract giving the buyer the right but not the obligation to purchase a commodity or other asset or to enter into a long futures position;
2) a period at the opening and the close of some futures markets in which the price for each futures contract is established by auction;
3) the requirement that a financial instrument be returned to the issuer prior to maturity, with principal and accrued interest paid off upon return.

CIF: CIF is the cost, insurance, and freight paid to a point of destination and included in the price quoted.

Commission: Commission is a fee charged by a broker or brokerage house (company) to a customer (trader) for executing a transaction. In the future market commission is
1) The charge made by a futures commission merchant for buying and selling futures contracts;
2) the fee charged by a futures broker for the execution of an order. Note: when capitalized, the word Commission usually refers to the CFTC.

Commodity: A commodity, as defined in the Commodity Exchange Act, includes the agricultural commodities enumerated in Section 1a(4) of the Commodity Exchange Act, 7 USC 1a(4), and all other goods and articles, except onions as provided in Public Law 85-839 (7 USC 13-1), a 1958 law that banned futures trading in onions, and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.

Contract: Contract is a term of reference describing a unit of trading for a commodity future or option. At the same time contract is 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 mature and become deliverable.

Delivery: Delivery is the transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. It is the tender and receipt of the actual commodity, the cash value of the commodity, or of a delivery instrument covering the commodity (e.g., warehouse receipts or shipping certificates), used to settle a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.

Equity: Equity is used on a trading account statement and it refers to the residual dollar value of a futures or option trading account, assuming it was liquidated at current prices.

Exchange: A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options contracts or securities. Exchanges include designated contract markets and derivatives transaction execution facilities.

Futures: Futures (also called Futures Contract) is a legally binding agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are normally standardized according to the quality, quantity, delivery time and location for each commodity, with price as the only variable.

Futures Contract: Futures Contract is 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) that obligates each party to the contract to fulfill the contract at the specified price; (3) that is used to assume or shift price risk; and (4) that may be satisfied by delivery or offset.

High: High is the highest price of the day for a particular futures or options on futures contract.

Initial Margin: Initial Margin is the amount a futures market participant must deposit into a margin account at the time an order is placed to buy or sell a futures contract. Margin is required to guarantee of contract fulfillment at the time a futures market position is established.

Low: Low is the lowest price of the day for a particular futures or options on futures contract.

Maintenance Margin: Maintenance Margin stands for setting minimum amount (per outstanding futures contract) that a customer must maintain in his margin account to retain the futures position.

Margin Call: Margin Call is a call from a clearinghouse to a clearing member, or from a broker or firm to a customer, to bring margin deposits up to a required minimum level.

Offset: Offset (also referred to as Liquidation, closing out and cover) is the liquidation of a purchase of futures contracts through the sale of an equal number of contracts of the same delivery month, or liquidating a short sale of futures through the purchase of an equal number of contracts of the same delivery month.

Open: Open is the period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the open."

Option: Option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific price within a specified period of time, regardless of the market price of that instrument. There are two types of options: Put Options and Call Options.

Par: Par refers to the standard delivery point(s) and/or quality of a commodity that is deliverable on a futures contract at contract price. Serves as a benchmark upon which to base discounts or premiums for varying quality and delivery locations. Par in bond markets refers to an index (usually 100) representing the face value of a bond.

SPAN: As developed by the Chicago Mercantile Exchange (CME), SPAN (Standard Portfolio Analysis of Risk) is the industry standard for calculating performance bond requirements (margins) on the basis of overall portfolio risk. SPAN calculates risk for all enterprise levels on derivative and non-derivative instruments at numerous exchanges and clearing organizations worldwide.

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