Futures trading terminology

Mar 26, 2013 | 07:00 PM |

Following is a glossary of some key terms associated with commodity futures trading, based on financial definitions used by Chicago-based CME Group.

Account equity: The net worth of a commodity account as determined by combining the ledger balance with any unrealized gain or loss in open positions as marked to the market.

Active month: In metals, the nearest base contract month that isn’t the current delivery month. The base months for metal futures are defined by each individual contract. Other contracts might designate the closest month to expiration or the expiration month that has the most trading volume.

Ask price: Also called the offer price. Indicates a willingness to sell futures or options on a futures contract at a given price.

Back months: The futures or options on futures contracts being traded that are further from expiration than the current, or “front month,” contract. Also called deferred or distant months.

Backwardation: A market situation in which futures prices are lower in succeeding delivery months. Also known as an inverted market. The opposite of contango.

Basis: The difference between the spot or cash price and the futures price of the same or a related commodity. Basis is usually computed to the near future, and can represent different periods, product forms, qualities and locations. The local cash market price minus the price of the nearby futures contract is equal to the basis.

Bear spread (futures): In most commodities and financial instruments, the term refers to selling the nearby contract month and buying the deferred contract to profit from a change in the price relationship.....





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