to make proper settlement when the contract is terminated. When the contracts are offset or deliveredupon, this money is returned to the trader along with his profit on the transaction,or is applied toward his debts if the trader has lost money.Traders who have a paper profit on their transactions may withdraw theirgains over and above the minimum security deposit required at any time before theyoffset their positions. On the other hand, if their transactions show a paper loss, theiraccounts will be debited accordingly, and they may be asked to deposit additional funds in order to maintain the value of their accounts at the required minimumamount.The clearinghouse requires daily settlement in cash for all price variations inevery contract traded. This means that each day the clearinghouse credits theaccount of clearing members showing a net gain due to favorable price move-
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The Commodity Futures Exchange
ments during that day’s trading and requires immediate payment from those members showing a net loss on their positions.Because there is, of course, a buyer for every seller, the monies paid outmust be equal to the monies collected, and the clearinghouse must show neither again nor a loss. It must balance before a new trading day begins.Brokers use the cash payments received from the clearinghouse to pay outtrading profits to customers. Conversely, they have to pay additional money to theclearinghouse to cover losses sustained by customers.In summary, today’s modern commodity futures exchanges have come along way in developing managerial techniques for handling the tremendous explosion in volume of trading seen in recent years. The exchanges themselves are modern structures, which make use of the most modern data-processing technologyavailable.
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Appendix I
Commodity Trader’s Scorecard
This scorecard (on page 330) is a practice trading exercise. It is designed to giveyou a basic “feel” for commodity futures trading. The more sophisticated kinds offutures trading transactions, such as day trades, straddles, and spreads, have beeneliminated in order to keep your practice trading as simple as possible. To bestutilize the scorecard, first familiarize yourself as much as possible with all theaspects of commodity futures trading explained in this book. Then:1. Develop a trading plan. Determine your financial suitability, select a commodity, its delivery month, the number of contracts you wish to “sell orbuy,” and your strategy for trading. This should be based on your knowledge of the commodity’s supply, demand, and technical situation along withyour best judgment of which direction prices will be moving in the futures.Remember, it is just as feasible to sell first with the intention of buyinglater, as is the opposite transaction.2. To make the hypothetical trades, determine the price of your contracts onthe initial date of the transactions. Look for the daily prices in the business section of your newspaper. All major newspapers carry this infor327Copyright 2001 The McGraw-Hill Companies. Click Here for Terms of Use.
Appendix 1
mation. Use closing (sometimes called “settlement”) prices. Remember thatwhile the value of a contract may be many thousands of dollars, the “earnestmoney” (margin) you have to put up is a much lesser amount. Thus, onlya small change in price can provide a large change in your investment,either positive or negative. Your profit or loss in dollars is determined bythe difference between the purchase price and the sales price.3. Commodity futures prices are quoted in cents per pound, dollars per hundredweight, cents per dozen, and dollars per thousand board feet, etc. Tokeep track of how much money you make or lose with each change inprice, you need to know how large each contract is and what unit the pricequote represents. For example, if the price of pork belly futures moves from34 cents per pound to 34.5 cents per pound, the price movement would beconsidered 50 “points.” Because each pork belly contract is for 40,000pounds, each movement of one “point” up or down is worth $4, and a 50point move would, therefore, amount to $200.4. Enter the information from items 1 and 2 on your scorecard. Obviously,you will not be able to fill in the net profit or loss until termination of thetransactions. Assume a minimum commission per contract of $40. (Mostbrokers have negotiated commission rates for large orders.)5. To calculate your profit and loss, take the lower price and subtract it fromthe higher price after you have terminated your position. Multiply the difference by the value per “point” (see step 3 above), and then multiply thatnumber by the quantity of contracts you sold or bought. If you bought forless than you sold, you have a profit and vice versa. Deduct your commission from the profits. Add it to your losses.6. When you have terminated your position and calculated your net profit orloss, enter the results in the proper column of your scorecard.7. Evaluate your plan.8. Be honest. Don’t cheat. You’re not fooling others; you’re fooling yourself.
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Commodity Trader’s Scorecard
EXAMPLE: Buy (long)Step 1:
$31.6231.02$.60
Bought 5 July bellies 9-16Sold 5 July bellies 11-2Difference in points
Step 2:
$4.00× 60$240.00
Price per pointPointsLoss
Step 3:
$40.00×5$200.00
CommissionContractsTotal commission
Step 4:
$240.00×5$1,200.00+200.00$1,400.00
LossContractsLossCommissionNet Loss
EXAMPLE: Sell (short)Step 1:
$31.6231.02$.60
Sold 5 July bellies 9-16Bought 5 July bellies 11-2Difference in points
Step 2:
$4.00× 60$240.00
Price per pointPointsProfit
Step 3:
$40.00×5$200.00
CommissionContractsTotal commission
Step 4:
$240.00×5$1,200.00–200.00$1,000.00
ProfitContractsProfitCommissionNet Profit
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Appendix 1
330
Glossary of CommodityFutures Terms
These definitions are not intended to state or suggest the correct legal significanceor meaning of any word or phrase, but only to help in understanding the commodity and foreign currency futures markets and the nomenclature used in them.(To) Accumulate
Buy futures contracts heavily in a specific commodity at regular predetermined intervals.
Acreage Allotment
Government limitation on planted acreage ofsome basic crops.
Actuals
Physical products bought and sold in the spotmarket.
ADP
Alternate Delivery Procedure, a contract deliverymethod permitting the buyer and the seller, by331
Copyright 2001 The McGraw-Hill Companies. Click Here for Terms of Use.
Glossary of Commodity Futures Terms
agreement, to settle their delivery commitmentindependently of the exchange.Allowances
The discounts (premiums) allowed the buyer forgrades or locations of a commodity lower (higher)than the par or basis grade or location specified inthe futures contract. Also called differentials.
Annualize
To put on an annual basis. Usually pertains tointerest rates, which are quoted on a yearly basis,or “per annum.” A profit of $4 on a three-monthinvestment of $100 would, on an annualizedbasis, be 16 percent.
Appreciation
An increase in value. If the deutschemark appreciates relative to the U.S. dollar, it will take moredollars to buy the same amount of deutschemarks. See Revaluation.
Approved Delivery Facility
Any bank, stockyard, mill, store, warehouse,plant, elevator, or other institution that is authorized by the exchange for delivery of exchangecontracts.
Arbitrage
The simultaneous purchase or sale of a contractin different markets in order to profit from discrepancies in prices between those markets. SeeInterest Arbitrage, Covered Interest Arbitrage,Spreads, Straddles.
At-The-Market
An order to buy or sell at the best price obtainable at the time the order is received. See MarketOrder.
Balance of Payments
A record, presented in balance sheet form, of thevalue of all the economic transactions betweenresidents, business firms, governments, and otherinstitutions in a country and the rest of the world.
Basis
The difference between the spot price and theprice of futures.
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Glossary of Commodity Futures Terms
Basis Grade
The grade of a commodity used as the standardof the contract.
Bear
One who believes prices will move lower. SeeBull.
Bear Market
A market in which prices are declining.
Bid
An offer to purchase at a specified price. SeeOffer.
Book Transfer
The transfer of title to buyer without physicalmovement of product.
Break
A rapid and sharp decline.
Broker
A person or firm that handles the actual execution of all trades.
Bull
One who expects prices to rise. See Bear.
Bull Market
A market in which prices are rising.
Buy In
To cover or close out a short position. SeeOffset.
Buy-On-Close
To buy at the end of the trading session at a pricewithin the closing range.
Buy-On-Opening
To buy at the beginning of the trading session ata price within the opening range.
Call
An exchange-designated buying and selling period during which trading is conducted in order toestablish a price or price range for a particulartime. Also an option to buy a security or commodity at a predetermined price within a giventime period.
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Glossary of Commodity Futures Terms
Car
A loose, quantitative term sometimes used todescribe a contract, e.g., “a car of bellies.”Derived from the fact that quantities of the product specified on a contract often correspondclosely to the quantity carried in a railroad car.
Carrying Broker
A member of the commodity exchange, usually acommission house broker, through whom another broker or customer elects to “clear” all orsome of his or her trades.
Carrying Charges
Cost of storing a physical commodity over aperiod of time. Includes insurance and intereston the invested funds as well as other incidentalcosts.
Cash Commodity
The actual physical commodity, as distinguishedfrom a futures commodity.
Cash Market
Market for immediate delivery and payment ofcommodities.
CCC
Commodity Credit Corporation. A governmentowned corporation established in 1933 to assistAmerican agriculture. Major operations includeprice support programs, supply control, and foreign sales programs for agricultural commodities.
CEA
Commodity Exchange Authority. An agency ofthe U.S. Department of Agriculture, which formerly administered the Commodity ExchangeAct before being replaced by the CFTC in 1975.
Central Bank
A financial institution that has official or semiofficial status in a federal government. Centralbanks are the instruments used by governmentsto expand, contract, or stabilize the supply ofmoney and credit. They hold reserves of otherbanks, act as fiscal agents for their governments,and can issue paper money.
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Glossary of Commodity Futures Terms
Central Rate
Similar to par value, as established by theInternational Monetary Fund.
Certified Stocks
Quantities of commodities designated and certified for delivery by an exchange under its trading and testing regulations at delivery pointsspecified and approved by the exchange.
(To) Clear
To be verified and guaranteed.
C&F
“Cost and freight” paid to move a commodity toa port of destination.
CFTC
Commodity Futures Trading Commission established in 1975 to succeed the CEA and take overregulation of all commodity futures and optionstrading in the U.S. The commission consists of achairman, vice-chairman and three other members, all appointed by the president.
CIF
Cost, insurance, and freight paid to move a commodity to a port of destination and included inthe price quoted.
Clearinghouse
An adjunct to a commodity exchange throughwhich transactions executed on the floor of theexchange are settled. Also charged with ensuringthe proper conduct of delivery procedures andthe adequate financing of the trading.
Clearing Member
A member of the clearinghouse or association.All trades of a non-clearing member must beregistered and eventually settled through a clearing member.
Clerk
A member’s employee who has been registeredto work on the trading floor as a phone-man orrunner.
335
Glossary of Commodity Futures Terms
(The) Close
A short period at the end of the trading sessionduring which the closing price range is established. Sometimes used to refer to the closingprice. See Opening.
Closing Range (or Range)
The closing price (or price range) recorded during the period designated as the official close.See Settling Price.
Commercial Stocks
Commodity in storage in public and private elevators or warehouses at important markets andafloat in vessels or barges in harbors and ports.
Commission
The fee charged by a broker to a customer whena transaction is made.
Commission House
A concern that buys and sells actual commodities or futures contracts for the accounts of customers. Its income is generated by the commissions charged to customers. Often usedsynonymously with brokerage house.
Commitment
Traders are said to have a “commitment” whenthey assume the obligation to accept or makedelivery by entering into a futures contracts. SeeOpen Interest.
Commodity Exchange Act
Federal act passed in 1936 establishing theCommodity Exchange Commission and placingfutures trading in a wide range of commoditiesunder the regulation of the government.
Commodity Pool
An enterprise in which funds contributed by anumber of persons are combined for purposes oftrading futures or commodity options.
Commodity PoolOperator (CPO)
An individual or organization that operates orsolicits funds for a commodity pool.
336
Glossary of Commodity Futures Terms
Commodity TraderAdvisor (CTA)
A person who advises others as to the valueor advisability of buying or selling futures contracts or commodity options, or one who actswith customer-granted authority to trade on thecustomer’s behalf. A CTA places trades for otherpeople’s accounts.
Contract
A term of reference describing a unit of tradingfor a commodity future, similar to “round lot” insecurities markets. Also, actual bilateral agreement between the buyer and seller in a futurestransaction.
Contract Grade
That grade of a commodity which has been officially approved by an exchange as deliverable insettlement of a futures contract. See Basis Grade,Par.
Contract Month
The month in which futures contracts may besatisfied by making or accepting delivery.
(To) Cover
The purchase of futures to offset a previouslyestablished short position.
Covered Interest Arbitrage
Interest arbitrage transaction that is hedgedagainst exchange rate fluctuation. For example,an American arbitraging to take advantage ofhigher interest rates in Germany would cover byselling deutschemarks forward at the same timethat he or she purchased them in the spot market.Usually done in short-term instruments. SeeArbitrage, Interest Arbitrage.
Crop Year
The period of time from one harvest or storagecycle to the next; varies with each commodity.
Cross-Rate
In foreign exchange, the price of one currency interms of another currency, in the market of athird country. For example, a London dollarcross-rate could be the price of one U.S. dollar interms of deutschemarks on the London market.
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Glossary of Commodity Futures Terms
Customer’s Man
A person employed by and soliciting businessfor a futures commission merchant. SeeRegistered Representative.
Day Order
Orders that are placed for execution, if possible,during only one trading session. If the order cannot be executed that day, it is automatically canceled.
Day Trading
Refers to establishing and liquidating the sameposition or positions within one day’s trading.
Deferred Futures
Future contracts that expire during the more distant months. See Nearbys.
Deficit
Where “outgo” exceeds income, or expensesexceed receipts. In balance of payments, itimplies that more of a country’s currency wentabroad than foreign currencies came into thecountry.
Delivery
The tender and receipt of an actual commodity,warehouse receipt, or other negotiable instrument covering such commodity, in settlement ofa futures contract.
Delivery Commitment,Buyer’s
The written notice given by the buyer of his orher intention to take delivery against a longfutures position on delivery day.
Delivery Commitment,Seller’s
The written notice given by the seller of his orher intention to make delivery against a shortfutures position on delivery day.
Delivery Month
A specified month within which delivery may bemade under the terms of the futures contract.
Delivery Notice
The written notice given by the seller of his orher intention to make delivery against an openshort futures position on a particular date.
338
Glossary of Commodity Futures Terms
Delivery Points
Those points designated by futures exchanges atwhich the physical commodity covered by afutures contract may be delivered in fulfillmentof such contract.
Delivery Price
The price, fixed by the clearinghouse, at whichdeliveries on futures are invoiced, and also theprice at which the futures contract is settledwhen deliveries are made. See Settling Price.
Demurrage
The charge incurred for delaying the loading orunloading of a vessel.
Depreciate
Decrease in value. A currency depreciates whenits “price,” or exchange rate, in terms of othercurrencies, goes down.
Devaluation
A formal “official” decrease in the value of acountry’s currency. For example, when theBritish pound sterling exchange rate, or price interms of U.S. dollars, falls from $2.80/pound to$2.40/pound.
Differentials
See Allowances.
Discount
Less than par. If a future delivery is selling at adiscount to the spot delivery, then it’s selling fora lower price than the spot price. See Premium.
Discretionary Account
An account over which any individual or organization, other than the person in whose name theaccount is carried, exercises trading authority orcontrol.
Dominant Future
That future having the largest number of opencontracts.
Dumping
Selling goods in a foreign country cheaper thanthey are sold at home. Under the rules of theGeneral Agreement on Tariffs and Trades(GATT), dumping occurs when the wholesale
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Glossary of Commodity Futures Terms
price to the importer is lower than the wholesaleprice charged to the buyer in the country of origin.Equity
The residual dollar value of a futures tradingaccount, assuming its liquidation at the goingmarket price.
Eurodollar
U.S. dollar deposits held abroad. Holders mayinclude individuals, companies, banks, and central banks.
Evening Up
Buying or selling to offset an existing marketposition. See Liquidation.
Exchange Rate
The “price” of one currency stated in terms ofanother currency.
Ex-Pit Transactions
Trades executed, for certain technical purposes,in a location other than the regular exchangetrading pit or ring.
First Notice Day
The first date, varying by commodities andexchanges, on which notices of intentions todeliver actual commodities against futures areauthorized.
Floating
The establishment of exchange rates by freemarket forces. “Clean floats” involve no government intervention to manipulate the exchangerates. “Dirty floats” involve government manipulation of the price.
Floor Broker
A member who executes orders for the accountof one or more clearing members.
Floor Trader
A member who executes trades for his or herown account, or for an account controlled byhim or her. Also referred to as a “local.”
FOB
Free-on-Board. A term describing the cost ofplacing commodities on board whatever shipment conveyance is being used.340
Glossary of Commodity Futures Terms
Foreign Exchange
Foreign currency. On the foreign exchange market, foreign currency is bought and sold forimmediate or future delivery. Also sometimesreferred to as non-U.S. futures exchange market.
Forward
In the future.
Forward Market
Refers to informal (non-exchange) trading ofcontracts for future delivery. Contracts for forward delivery are “personalized,” i.e., deliverytime and amount are as determined by the customer.
Free Supply
The storage supply of a commodity outside ofgovernment-held stocks; the amount availablefor commercial sale.
Futures
A term used to designate the standardized contracts covering the sale of commodities forfuture delivery on a commodity exchange.
Futures Commission
A firm or person engaged in soliciting or
Merchant
accepting and handling orders for the purchaseor sale of commodities for future delivery on, orsubject to, the rules of a futures exchange andwho, in connection with such solicitation oracceptance of orders, accepts any money orsecurities to margin any resulting trades or contracts. Must be licensed under the CommodityExchange Act.
Give Up
At the request of the customer, a brokeragehouse that has not performed the service is credited with the execution of any order.
Grading Certificate
A paper setting forth the quality of a commodityas determined by authorized inspectors orgraders.
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Glossary of Commodity Futures Terms
Group of 10
The 10 leading industrial nations of the freeworld. Specifically, the United States, Canada,England, Belgium, France, Germany, Italy, theNetherlands, Sweden, and Japan.
GTC
Good-’til-Canceled. An order to your broker tobuy or sell at a fixed price. The order holds untilexecuted or canceled.
Hardening
Describes a price which is gradually stabilizing.
Heavy
A description of a market in which prices aredemonstrating either an inability to advance or aslight tendency to decline.
Hedging
A means of risk protection against extensive lossdue to adverse price fluctuations. In the futuresmarket, a purchase or sale for future delivery asa temporary substitute for a merchandising transaction to be made later.
Interest Arbitrage
The operation wherein foreign debt instrumentsare purchased to profit from the higher interestrate in the foreign country over the home country. The operation is profitable only when theforward rate on the foreign currency is selling ata discount less than the premium on the interestrate. For example, if the interest rate in WestGermany is 2 percent higher than in the U.S.,interest arbitrage profits are possible if the forward rate for deutschemarks is higher than a 2percent discount over the spot rate. This is onefundamental factor affecting forward rates ofexchange. See Interest Rate Parity.
Interest Rate Parity
The formal theory of interest rate parity holdsthat under normal conditions the forward premium or discount on a currency in terms of anotheris directly related to the interest rate differentialbetween the two countries. For example, the forward rate discount (or premium) on Swiss francs
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Glossary of Commodity Futures Terms
in terms of dollars would equal the premium (ordiscount) of interest rates in Switzerland over (orunder) those in the U.S. This theory holds onlywhen there are unrestricted flows of internationalshort-term capital. In reality, numerous economic and legal obstacles restrict the movement, sothat actual parity is rare. See Interest Arbitrage,Covered Interest Arbitrage.International MonetaryFund
An organization of 126 countries created to:(1) promote international cooperation; (2) facilitate expansion and balanced growth of international trade; (3) promote exchange stability; (4)avoid competitive exchange depreciation; (5)assist in establishment of a multinational systemof payments and elimination of foreign exchangerestrictions; and (6) provide members withresources to correct short-term imbalances ofpayments. Created at Bretton Woods, NewHampshire, in July 1944.
Intervention Limits
Outer limit of variation of the par value (asagreed upon by the IMF or a group of tradingpartners) of the spot price of a currency. At thispoint IMF members are obligated to keep theprice within this limit. The intervention takes theform of open market sales or purchases of thecurrency. For example, if the deutschemark is atthe lower intervention limit, the German centralbank will buy deutschemarks, usually with U.S.dollars, to decrease the supply of deutschemarksand thereby raise its “price” above the lowerlimit. If the upper limit were approached, thegovernment would sell deutschemarks.
Introducing Broker
A CTFC/NFA registered broker who solicits andservices customer brokerage accounts but “introduces” (passes on) their orders to FuturesCommission Merchants for execution, clearing,and record-keeping.
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Glossary of Commodity Futures Terms
Inverted Market
A futures market in which the nearer months areselling at premiums to the more distant months.
Invisible Supply
Usually refers to uncounted stocks in the handsof wholesalers, manufacturers, and ultimate consumers, and sometimes to producers’ stocks thatcannot be counted accurately.
Last Trading Day
The final day under an exchange’s rules duringwhich trading may take place in a particularfutures delivery month. Futures contracts outstanding at the end of the last trading day mustbe settled by delivery or, in the case of cash settlement, by an exchange of cash value differences.
Limit Order
An order given to a broker with restrictions suchas price and time upon its execution.
Liquidation
Same as Offset. Any transaction which offsets orcloses out a long or short position. A market inwhich open interest is declining.
Liquidity
A market is said to be liquid when it has a highlevel of trading activity, allowing buying andselling with minimum price disturbance.
Local
A floor broker who usually executes trades onlyfor his or her own account.
Long
One who has bought a futures contract to establish a market position and who has not yet closedout this position through an offsetting sale.Opposite of Short.
Long the Basis
The purchase of a cash commodity and the saleof a futures against unsold inventory to provideprotection against a price decline in the cashmarket. Synonymous with Short Hedge.
344
Glossary of Commodity Futures Terms
Long Hedge
The purchase of a futures contract to offset theforward sale of an equivalent quantity of a commodity not yet owned. Used as protectionagainst an advance in the cash price. See Hedge.
Maintenance Margin(Maintenance SecurityDeposit)
A sum, usually smaller than, but part of, theoriginal margin (security deposit) which mustbe maintained on deposit at all times. If a customer’s equity in any futures position drops to orunder the maintenance margin level, the brokermust issue a call for the amount of moneyrequired to restore the customer’s equity in theaccount to the original margin level.
Margin
On all commodity exchanges, except theInternational Monetary Market, a cash amount offunds that a customer must deposit with the broker for each contract as a sign of good faith infulfilling the contract terms. It is not consideredas part payment of purchase. On the IMM, anamount of funds that must be deposited by aclearing member with the clearinghouse for eachcontract as a guarantee of fulfillment of thefutures contract. See Security Deposit.
Margin Call
A demand for additional cash funds because ofadverse price movement. See MaintenanceMargin.
Market Order
An order for immediate execution given to yourbroker to buy or sell at the best obtainable price.
Maximum Daily PriceFluctuation
The maximum amount the contract price canchange up or down during one trading session,as fixed by exchange rules.
Minimum PriceFluctuations
Smallest increment of price movement possiblein trading a given contract. For example, theminimum price fluctuation on one gold contractis .10/troy oz. or $10 per contract. See Point.
345
Glossary of Commodity Futures Terms
MIT
Market-If-Touched. A price order that automatically becomes a market order if the price isreached.
Monetary Policy
Government actions to control a country’sdomestic economy by adjusting the money supply. Used in conjunction with fiscal policy,which injects funds into an economy via publicworks, grants, and federal contracts with thegovernment as the buyer of goods and services.
Nearbys
The nearest delivery months of a commodityfutures market.
Negotiable WarehouseReceipt
A legal document issued by a warehousedescribing and guaranteeing the existence of aspecific quantity (and sometimes specific grade)of a commodity in the warehouse.
Nominal Price
Price quotation on futures for a period in whichno actual trading took place.
Notice Day
A day on which notes of intent to deliver pertaining to a specified delivery month may be issued.
Offer
Indicates a willingness to sell a futures contractat a given price. Opposite of Bid.
Offset
See Evening Up, Liquidation.
Omnibus Account
An account carried by one futures commissionmerchant with another futures commission merchant in which the transactions of two or morepersons are combined and carried in the name ofthe originating broker rather than designated separately. See Futures Commission Merchant.
Open Contracts
Contracts that have been bought or sold and arestill outstanding, not having been delivered uponor offset. See Open Interest.
346
Glossary of Commodity Futures Terms
Open Interest
Number of open contracts. Refers to unliquidated purchases or sales, never to their combinedtotal.
Open Order
An order to your broker that is good until it iscanceled or executed.
(The) Opening
The varying time period at the beginning of thetrading session officially designated by theexchange during which all transactions are considered made “at the opening.” The precise timevaries with the amount of activity at the opening.See Close.
Opening Price
The price (or range) recorded during the perioddesignated by the exchange as the official opening.
Option
Sometimes used as a synonym for “FuturesContract Month,” as in the June Option. Technically the term is incorrect in the sense thatOptions are agreements with a seller or buyerpermitting the holder to buy or sell, if he or shechooses to do so, at a given price within a givenperiod.
Original Margin
The margin needed to cover a specific new position.
Overbought
A market that has had sharp advance. Rank-andfile traders (who were bullish and long earlier)have turned bearish.
Oversold
A market that has had a sharp decline. Rank-andfile traders (who were bearish and short earlier)have turned bullish.
P&S
Purchase and Sale Statement. A statement provided by the broker to a customer showing thechange in his net ledger balance after the offsetof a previously established position.
347
Glossary of Commodity Futures Terms
Par
Refers to the standard delivery point or points, orto quality specifications of the commodity represented in the contract. Serves as a benchmarkupon which to base discounts or premiums forvarying quality. In foreign exchange, anexchange rate arbitrarily set by the country ofissuance and ratified by the IMF.
Parity
Par Rate.
Per Annum
Per year. Usually refers to interest rates, a basisof comparison of rates among various debtinstruments of less than one year duration.
Point
The minimum unit in which changes in futuresprices may be expressed; e.g., 1/10th of a centper ounce for silver.
Position
One’s interest in the market, either long or short,in the form of open contracts.
Position Limit
The maximum number of contracts, as prescribed by an exchange or the CFTC, either netlong or net short, in one commodity future or inall futures of one commodity combined, whichmay be held or controlled by one person or onefirm in its own name.