This glossary was compiled by the Chicago Mercantile Exchange from a number of sources. The definitions are not intended to state or suggest the correct legal significance or meaning of any word or phrase. The sole purpose of this compilation is to foster a better understanding of futures and options on futures.



The simultaneous purchase and sale of identical or equivalent financial instruments or commodity futures in order to benefit from a discrepancy in their price relationship.


Also called "offer". Indicates a willingness to sell a futures contract at a given price. (See bid)

Back Months

The futures or options on futures months being traded that are furthest from expiration.


One who believes prices will move lower.

Bear Market

A market in which prices are declining.


The price that the market participants are willing to pay. See offer.


One who expects prices to rise.

Bull Market

A market in which prices are rising.

Buy On Close

To buy at the end of a trading session at a price within the closing range.

Buy On Opening

To buy at the beginning of a trading session at a price within the opening range.

Cabinet Trade or cab

A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick.


An option to buy a commodity, security or futures contract at a specified price anytime between now and the expiration date of the option contract.

Cash Commodity

The actual physical commodity as distinguished from a futures commodity.

Close, The

The period at the end of the trading session. Sometimes used to refer to the closing range. (See opening, the)

Commission (or Round Turn)

The one-time fee charged by a broker to a customer when a futures or options on futures position is liquidated either by offset or delivery.


The Commodity Futures Trading Commission as created by the Commodity Futures Trading Commission Act of 1974. This government agency currently regulates the nation's commodity futures industry.


Unit of trading for a financial or commodity future. Also, actual bilateral agreement between the parties (buyer and seller) of a futures or options on futures transaction as defined by an exchange.

Contract Month

The month in which futures contracts may be satisfied by making or accepting delivery. (See delivery month.)

Day Order

An order that is placed for execution during only one trading session. If the order cannot be executed that day, it is automatically cancelled.

Day Trading

Refers to establishing and liquidating the same position or positions within one day's trading, thus ending the day with no established position in the market.


Another term for "back months."


The tender and receipt of an actual commodity or financial instrument, or cash in settlement of a futures contract.

Exercise Or Strike Price

The price at which the holder (buyer) may purchase or sell the underlying futures contract upon the exercise of an option.

Expiration Date

The last day that an option may be exercised into the underlying futures contract. Also, the last day of trading for a futures contract.

Floor Broker

An exchange member who is paid a fee for executing orders for Clearing Members or their customers. A Floor Broker executing orders must be licensed by the CFTC.

Floor Trader

An exchange member who generally trades only for his/her own account or for an account controlled by him/her. Also referred to as a "local."


A term used to designate all contracts covering the purchase and sale of financial instruments or physical commodities for future delivery on a commodity futures exchange.

Futures Commission Merchant

A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection with solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades or contracts. The FCM must be licensed by the CFTC.


The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Usually it involves opposite positions in the cash market and futures market at the same time. (See long hedge, short hedge.)


One who purchases an option.

Initial Performance Bond

The funds required when a futures position (or a short options on futures position) is opened. (Previously referred to as Initial Margin)

Limit Order

An order given to a broker by a customer that specifies a price; the order can be executed only if the market reaches or betters that price.

Limit Price

(See maximum price fluctuation.)


Any transaction that offsets or closes out a long or short futures position.


One who has bought a futures or options on futures contract to establish a market position through an offsetting sale; the opposite of short.

Long Hedge

The purchase of a futures contract in anticipation of an actual purchase in the cash market. Used by processors or exporters as protection against and advance in the cash price. (See hedge, short hedge.)


(See Performance Bond)

Maintenance Performance Bond (Previously referred as Maintenance Margin)

A sum, usually smaller than--but part of--the initial performance bond, which must be maintained on deposit in the customer's account at all times. If a customer's equity in any futures position drops to, or under, the maintenance performance bond level, a "performance bond call" is issued for the amount of money required to restore the customer's equity in the account to the initial margin level.


The daily adjustment of margin accounts to reflect profits and losses.

Market Order

An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Maximum Price Fluctuation

The maximum amount the contract price can change, up or down, during one trading session, as stipulated by Exchange rules.

Minimum Price Fluctuation

Smallest increment of price movement possible in trading a given contract, often referred to as a "tick."


Market-If-Touched. A price order that automatically becomes a market order if the price is reached.


The nearest active trading month of a futures or options on futures contract. Also referred to as "lead month."


Also called "ask". Indicates a willingness to sell a futures contract at a given price. (See bid.)


Selling if one has bought, or buying if one has sold, a futures or options on futures contract.

Open Interest

Total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery. An indicator of the depth or liquidity of a market (the ability to buy or sell at or near a given price) and of the use of a market for risk- and/or asset-management.

Open Order

An order to a broker that is good until it is canceled or executed.

Opening, The

The period at the beginning of the trading session during which all transactions are considered made or first transactions were completed.

Opening Price (Or Range)

The range of prices at which the first bids and offers were made or first transactions were completed.


A contract giving the holder the right, but not the obligation, hence, "option," to buy (call option) or sell (put option) a futures contract in a given commodity at a specified price at any time between now and the expiration of the option contract.


A situation that results when there is some confusion or error on a trade. A difference in pricing, with both traders thinking they were buying, for example, is a reason why an out-trade may occur.


An interest in the market, either long or short, in the form of open contracts. (See open interest.)

Performance Bond (Previously referred to as Margin)

Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole.

Performance Bond Call (previously referred to as Margin Call)

A demand for additional funds because of adverse price movement.


  • The excess of one futures contract price over that of another, or over the cash market price.
  • The amount agreed upon between the purchaser and seller for the purchase or sale of a futures option -- purchasers pay the premium and sellers (writers) receive the premium.


An option to sell a commodity, security, or futures contract at a specified price at any time between now and the expiration of the option contract.


An upward movement of prices following a decline; the opposite of a reaction.


The high and low prices or high and low bids and offers, recorded during a specified time.


A decline in prices following an advance. The opposite of rally.

Registered Representative

A person employed by, and soliciting business for, a commission house or Futures Commission Merchant.


Procedure by which a long or short position is offset by an opposite transaction or by accepting or making delivery of the actual financial instrument or physical commodity.


To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, usually within the same day, hour or even just a few minutes.

Settlement Price

A figure determined by the closing range that is used to calculate gains and losses in futures market accounts. Settlement prices are used to determine gains, losses, margin calls, and invoice prices for deliveries. (See closing range.)


One who has sold a futures contract to establish a market position and who has not yet closed out this position through an offsetting purchase; the opposite of long.

Short Hedge

The sale of a futures contract in anticipation of a later cash market sale. Used to eliminate or lessen the possible decline in value of ownership of an approximately equal amount of the cash financial instrument or physical commodity. (See hedge, long hedge.)


One who attempts to anticipate price changes and, through buying and selling futures contracts, aims to make profits; does not use the futures market in connection with the production, processing, marketing or handling of a product. The speculator has no interest in making or taking delivery.


The simultaneous purchase and sale of futures contracts for the same commodity or instrument for delivery in different months, or in different but related markets. A spreader is not concerned with the direction in which the market moves, but only with the difference between the prices of each contract.

Stop Order (Or Stop)

An order to buy or sell at the market when and if a specified price is reached.


Refers to a change in price, either up or down. (See minimum price fluctuation.)


The general direction of the market.


The number of transactions in a futures or options on futures contract made during a specified period of time.


An individual who sells an option.