Abandon: To elect not to exercise or offset a long option position.
Aggregation: The principle under which all securities/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 position limits.
Allowances: The discounts or premiums allowed for grades or locations of a commodity lower or higher than the par or basis grade or location specified in the futures contract. See Differentials.
All or None: Refers to the order requests for a broker to fill an order completely at a predetermined price or not at all. Refers to both buy and sell orders.
American Option: An option contract that may be exercised on any day up to and including the expiry date. (See Option)
American Depository Receipt (ADR): Security representing the ownership interest in a foreign company's common stock. ADRs allow foreign shares to be traded in the United States much like any other security.
Arbitrage: simultaneously buying and selling a financial asset or commodity in different markets to take advantage of price differentials.
Arbitration: The procedure available to customers for the settlement of disputes. Brokers and exchange members are required to participate in arbitration to settle disputes. Arbitration is available through the exchanges and the regulator for that exchange/jurisdiction.
Asset classes: Categories of assets, such as stocks, bonds, real estate, derivatives and foreign securities.
Assignable Contract: A contract that allows the holder to convey his rights to a third party. Exchange-traded contracts are not assignable.
Ask or asking price: the price at which a dealer offers to sell.
Assay: To test a metal for purity to ascertain the fineness and weight of a precious metal.
Ask Rate: The lowest price that shares will be offered for sale, such as the bid/ask spread in the foreign exchange market.
Ask Size: The number of shares a seller is willing to sell at his/her ask rate.
Assignment: Options are exercised through the option purchaser's broker, who notifies the clearinghouse of the option's exercise. The clearinghouse then notifies the option seller that the buyer has exercised the right attached to that option. When options on futures are exercised, the buyer of a call option is assigned a long futures contract, and the seller receives the corresponding short position. Conversely, the buyer of a put option is assigned a short futures contract upon exercise, while the seller receives the corresponding long position.
At the market: When issued, this order is to buy or sell a security/futures or options contract as soon as possible at the best possible price. See Market order.
At-the-money: An option is at-the-money when its strike price is equal, or approximately equal, to the current market price of the underlying asset/futures contract.
Au: The chemical symbol for gold, originating from the Latin word "aurum" meaning "shining dawn" after Aurora, the goddess of dawn.
Automatic Exercise: A provision in an option contract specifying that it will be exercised automatically on the expiration date if it is in-the-money by a specified amount, absent instructions to the contrary.
Authorized User: A person authorized by the member broker and recognized by the exchange to use the Trading Work Station for execution of orders received by his/her clients.
Away From the Market: When the bid on an order is lower (or the ask price is higher) than the current market price for the security/contract.
Backwardation: A market condition where the forward price is lower than the nearby price.
Back Months: Also known as "back contracts" are the futures or futures options contracts that are the farthest from delivery/expiration.
Back Office: The department in the financial institution that processes the post trade activities and handles delivery, settlement, and regulatory procedures.
Back pricing: 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.
Bank Rate: The rate at which a central bank is prepared to lend money to its domestic banking system.
Bar chart: A graphic representation of price movement disclosing the high, low, close, and sometimes the opening prices for the day. A vertical line is drawn to correspond with the price range for the day, while a horizontal "tick" pointing to the left reveals the opening price, and a tick to the right indicates the closing price. After days of charting, patterns start to emerge, which technicians interpret for their price predictions.
Bar: Typical gold product, either for trading or for accumulation. Bars come in a variety of shapes weights and purities and different bars are favored in different parts of the world. See Bullion, Tola, Tael, Kilo-bar
Basis: The difference between the cash price and the futures price of a commodity. CASH - FUTURES = BASIS. Basis also is used to refer to the difference between prices at different markets or between different commodity grades.
Basis Convergence: The process whereby the basis tends towards zero as the contract expiry approaches.
Basis Risk: The risk associated with an unexpected widening or narrowing of basis between the time a hedge position is created and the time that it is reversed.
Beta: A measure correlating stock price movement to the movement of an index. Beta is used to determine the number of contracts required to hedge with stock index futures or futures options.
Bear market: a market in which the primary trend is downward.
Beta (Beta Coefficient): A measure of the variability of rate of return or value of a stock or portfolio compared to that of the overall market, typically used as a measure of riskiness.
Bid-Ask Spread: The difference between the bid price and the ask or offer price.
Bid: the price at which a dealer or other prospective buyer is willing to buy. See Spread.
Black-Sholes Model: An option pricing model initially developed by Fischer Black and Myron Scholes for securities options and later refined by Black for options on futures.
Block Trade: A large transaction that is negotiated off a market and then executed/notified on an exchange's trading facility, as permitted under exchange rules.
Bollinger Bands: An indicator that allows users to compare volatility and relative price levels over a period time. This indicator consists of three bands designed to encompass the majority of a security's price action - a simple moving average in the middle; an upper band 2 standard deviations away from the simple moving average (usually set to a time frame of 20); and a corresponding lower band that is also 2 standard deviations away from the moving average. Since the band width is a function of standard deviation, assets with greater volatility will have wider bands.
Bonds: Bonds are debt instruments used to raise capital, which are issued for periods greater than one year. Bondholders are lending money to companies and governments, at the end of which they will be paid a specified interest rate. Bond prices are inversely related to interest rates, as interest rates rise, bond prices fall. There are numerous types of bonds, including treasury bonds, notes, and bills; municipal bonds and corporate bonds.
Broker: An agent who executes trades (buy or sell orders) for customers. He receives a commission for these services.
Brokerage: Commission charged to the investor by a broker for executing trades/clearing and settlements/any other related services.
Brokerage house: A firm that handles orders to buy and sell securities/futures and options contracts for customers.
Bull market: a market in which the primary trend is upward.
Bullion: Precious metals in the form of bars that are usually at least 99.5% pure. Originally meaning ‘melting place' or ‘mint', probably from the French bouillon or boiling.
Call: an option granting the option buyer the right, but not the obligation, to buy the underlying asset or a financial security at a predetermined price (the strike price) on or before a specified date in the future.
Calendar Spread: (1) The purchase of one delivery month of a given futures contract and simultaneous sale of a different delivery month of the same futures contract; (2) the purchase of a put or call option and the simultaneous sale of the same type of option with typically the same strike price but a different expiration date.
Carrying Charges: Cost of storing a physical commodity or holding a financial instrument over a period of time. These charges include insurance, storage, and interest on the deposited funds, as well as other incidental costs.
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 securities/foreign currency/commodity (as contrasted to a futures contract)
Cash Settlement: A method of settling certain futures or option contracts whereby the seller and the buyer exchange the difference in the cash value of the underlying assets like securities/indices/commodity/etc at the time of settlement and the different in the contract value when traded according to a procedure specified in the contract.
Circuit Breakers: A system of harmonized trading halts and/or price limits on securities and derivative markets designed to provide a cooling-off period during large, intraday market movements.
Clearing Corporation/ Clearing House: Undertakes the clearing and settlement of funds and securities/assets on the settlement date for a corresponding trade/contract.
Clearing Member: A member of a clearing corporation. All trades of a non-clearing member must be processed and eventually settled through a clearing member.
Closing-Out: Liquidating an existing long or short position with an equal and opposite transaction.
Closing Price: The price recorded during trading that takes place in the final period of a trading session's activity that is officially designated as the "close."
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, e.g., metals, agriculture, etc
Contract Size: The actual amount of assets/underlying/commodity represented in a contract.
Counterparty Risk: The risk associated with the financial stability of the party entered into contract with. Forward contracts impose upon each party the risk that the counterparty may default, but futures contracts executed on a designated exchange are guaranteed against default by the clearing corporation.
Contango Market: A market condition where the forward price is higher than the nearby price
Cover: To offset a short position in securities, futures or options.
Covered Option: A short call or put option position that is covered by the sale or purchase of the underlying futures contract or other underlying instrument. For example, in the case of options on futures contracts, a covered call is a short call position combined with a long futures position. A covered put is a short put position combined with a short futures position.
Credit Default Swap: A bilateral contract traded usually over-the-counter (OTC) in which the seller agrees to make a payment to the buyer in the event of a specified credit event in exchange for a fixed payment or series of fixed payments; the most common type of credit derivative; also called credit swap; similar to credit default option.
Currency Swap: A swap that involves the exchange of one currency (e.g., U.S. dollars) for another (e.g., Japanese yen) on a specified schedule.