Glossary |
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Edge
In the open-outcry arena, edge is simply buying the on the current bid or selling on the current offer. On the screen, edge is a matter of perception. Each trader creates his/her own edge, usually as a result of developing a trading process that is unique to them and their perception of the market at any given time.
Equilibrium Price
The market price at which the quantity supplied equals the quantity demanded.
Eurodollars
U.S. dollars that are on deposit with banks outside of the United States and, consequently, outside the jurisdiction of the United States. The bank could be either a foreign bank or a subsidiary of a U.S. bank.
European-style Option
An option contract that may be exercised only during a specified period of time just prior to expiration
European Terms
A method of quoting exchange rates, which measures the amount of foreign currency needed to buy one U.S. dollar, i.e., foreign currency unit per dollar. See Reciprocal of European Terms.
Exchange For Physicals (EFP)
A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as against actuals or versus cash.
Exercise
An action taken by the holder of a call option if he/she wishes to purchase the underlying futures contract at the strike price; or by the holder of a put option if he wishes to sell the underlying futures contract at the strike price.
Exercise Price
See Strike Price.
Exercise Settlement Amount
The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.
Expanded Trading Hours
Additional trading hours of specific futures and options contracts at a futures exchange that overlap with business hours in other time zones.
Expiration Cycle
An expiration cycle relates to the dates on which options on a particular underlying security expire. A given option, other than LEAPS?, will be assigned to one of three cycles, the January cycle, the February cycle or the March cycle.
Expiration Date
Options on futures generally expire on a specific date during the month preceding the futures contract delivery month. For example, an option on a March futures contract expires in February but is referred to as a March option because its exercise would result in a March futures contract position.
Expiration Time
The time of day by which all exercise notices must be received on the expiration date.
Extrinsic Value
Difference between an option's price and its intrinsic value. I.e. an option with a premium price of $10 & an intrinsic value of $5, has an extrinsic value of $5. The extrinsic or time value of an option declines as the expiration date approaches.
Feed Ratio
A ratio used to express the relationship of feeding costs to the dollar value of livestock. See Hog/Corn Ratio and Steer/Corn Ratio.
Fill-or-Kill
A customer order that is a price limit order that must be filled immediately or canceled.
Financial futures
Include interest rate futures, currency futures, and index futures. The financial futures market currently is the fastest growing of all the futures markets.
Financial Instrument
There are two basic types: (1) a debt instrument, which is a loan with an agreement to pay back the principal with interest (coupon payments); (2) an equity security, which is a share of stock in a company.
First Notice Day
According to Chicago Board of Trade rules, the first day on which a notice of intent to deliver a commodity in fulfillment of a given month's futures contract can be made by the clearinghouse to a buyer. The clearinghouse also informs the sellers who they have been matched up with.
Floor Broker
An individual who executes orders for the purchase or sale of any commodity futures or options contract on any contract market for any other person.
Floor Trader
An individual who executes trades for the purchase or sale of any commodity futures or options contract on any contract market for such individual's own account.
Forex Market or Foreign Exchange Market
An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication.
Forward (Cash) Contract
A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.
Full Carrying Charge Market
A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage.
Fundamental Analysis
The study of specific factors, such as weather, wars, discoveries, and changes in government policy, which influence supply and demand and, consequently, prices in the market place.
Futures Commission Merchant (FCM)
An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders.
Futures Contract
A legally binding agreement, made on the trading floor or the trading screen of a futures exchange, to buy or sell a commodity or financial instrument at some point in the future. Futures contracts are standardized according to quality, quantity, delivery time and location. These specifications are unique for every product type. The only variable is price, which is discovered on an exchange trading floor or via a electronic trading screen.
Futures Exchange
A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.
