Glossary

Scalper

A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight. A professional scalper will typically make 100 or more trades each day.

Secondary Market

The financial market for trading of securities that have already been issued in an initial private or public offering. The secondary market can also refer to the market for any kind of used goods. The market that exists in a new security just after the new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock.

Selling Hedge (or Short Hedge)

Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold. I.e. when a hedger has a long cash position (holding an inventory or growing a crop) he enters a short hedge by selling a futures contract. A sell or short hedge is also known as a substitute sale.

Settlement Price

The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm's net gains or losses, margin requirements, and the next day's price limits, based on each futures and options contract settlement price. If there is a closing range of prices, the settlement price is determined by averaging those prices. Also referred to as the settle or closing price.

Series

All option contracts of the same class that also has the same expiration date and strike price.

Short

One who has sold futures contracts or plans to purchase a cash commodity. Selling futures contracts or initiating a cash forward contract sale without offsetting a particular market position.

Speculator

A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. Speculators assume market price risk and add liquidity and capital to the futures markets.

Spot

Usually refers to a cash market price for a physical commodity that is available for immediate delivery.

Spot Month

See Nearby (Delivery) Month.

Spread

The price difference between two related markets or commodities.

Spreading

The simultaneous buying and selling of two correlated market products with the expectation that a profit will be made when the position is offset. Examples include: buying one futures contract and selling another futures contract of the same commodity but different delivery month; buying and selling the same delivery month of the same commodity on different futures exchanges; buying a given delivery month of one futures market and selling the same delivery month of a different, but related, futures market.

Steer/Corn Ratio

The relationship of cattle prices to feeding costs. It is measured by dividing the price of cattle ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to cattle prices, fewer units of corn equal the dollar value of 100 pounds of cattle. Conversely, when corn prices are low in relation to cattle prices, more units of corn are required to equal the value of 100 pounds of beef. See Feed Ratio.

Stock Index Futures

Based on stock market indexes, including Standard and Poor's 500, Value Line, NYSE Composite, Nikkei 225, the Major Market Index, and the Over-the-Counter Index, these instruments are used by investors concerned with price changes in a large number of stocks, or with major long-term trends in the stock market indexes. Stock index futures are settled in cash and are generally quoted in ticks of .05. To determine the contract value, the quote is generally multiplied by $500.

Stop-Limit Order

A variation of a stop order in which a trade must be executed at the exact price or better. If the order cannot be executed, it is held until the stated price or better is reached again.

Stop Order

An order to buy or sell when the market reaches a specified point. A stop order to buy becomes a market order when the futures contract trades (or is bid) at or above the stop price. A stop order to sell becomes a market order when the futures contract trades (or is offered) at or below the stop price.

Stopped Out

When a stop order has been activated and the position has been offset, the trader/investor is said to have been "stopped out".

Straddle

The simultaneous sale or purchase of both a call and a put with the same expiration month and with the same strike price. A straddle is a good strategy if you believe that price will move significantly, but are not sure which way its going to go. In order to profit, the price must make a significant move

Strangle

The simultaneous sale or purchase of both a call and a put with the same expiration month and different strike prices. This strategy is profitable only if there is a large move in either direction. A strangle is usually less expensive than a straddle because the option are out of the money.

Strike Price

The stated price per share for which underlying stock may be purchased (for a call) or sold (for a put) by the option holder upon exercise of the option contract. Also known as exercise price.

Law of Supply

Supply exhibits an inverse relationship to price. If all other factors hold constant, an increase in supply causes a decreased price, while a decrease in supply causes an increased price.

Support

A horizontal price range where price hovers due to buying pressure before attempting a upward move.

Technical Analysis

Technical analysis uses charts to examine changes in price patterns, volume of trading, open interest, and rates of change to predict and profit from trends. Someone who follows technical rules (called a technician) believes that prices will anticipate changes in fundamentals.

Tick

The smallest allowable increment of price movement for a contract. Also referred to as minimum price fluctuation.

Time and Sales

A service that transmits price and time information for trading throughout the day.

Time-Stamped

Part of the order-routing process in which the time of day is stamped on an order. An order is time-stamped when it is (1) received on the trading floor, and (2) then again when it has been filled or cancelled.

Time Value

The amount of money option buyers are willing to pay for an option in the anticipation that, over time, a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value. Also referred to as extrinsic value.

Trade Balance

The difference between a nation's import & export of goods to and from other countries.

Trading Range

The prices traded between the high & low for a specific time period (day, week, month, contract life, etc)

Treasury Bill

See U.S. Treasury Bill.

Treasury Bond

See U.S. Treasury Bond.

Treasury Note

See U.S. Treasury Note.

Trend

A significant price movement one direction or another. Trends may go either up or down or even sideways. Uptrend, Downtrend, Sideways trend.

Type

The classification of an option contract as either a put or a call.