
1pt=AD$25.00
None
Canola
WCE
9:30 am–1:15 pm
F,H,K,N,U,X
20 metric tons
CD$/tonne
CD10¢ per tonne
CD$30/ton
CAC 40
MATIF
1:00 am–10:30 am10:30 am–1:00 pm
All months
10 Euro × CAC40Index
Index with1 decimal
.5pt=5 Euro
250 pts
10-yr SpanishBond
MEFF
1:00 am–10:15 am
H,M,U,Z
100,000 Euro
Basis pts
1pt=10 Euro
None
IBEX-35
MEFF
2:00 am–10:35 am
H,M,U,Z
10 Euro × IBEX-35Index
100th/pt
1pt=10 Euro
None
Contract
Exchange
90-Day Bank Bills*
*Trading times vary with U.S. daylight saving time.Source of data: Futures and options exchanges. This information is believed to be reliable. Lind-Waldock cannot be held responsible for either its accuracyor its completeness.
A PPENDIX C
Speculative Margins
T
hese are the original/initial and maintenance margin requirements for futurescontracts traded on U.S. and foreign exchanges. Margin requirements maychange within a trading day, so the best way to be certain that you have themost current information is to check with your brokerage firm.
269
270
THE COMPLETE GUIDE TO FUTURES TRADING
U.S. MarketsExchange
Original
Maintenance
CurrenciesEuro FXBritish PoundJapanese YenSwiss FrancAustralian DollarCanadian DollarMexican PesoUS $ IndexYen E-miniEuro E-mini
IMMIMMIMMIMMIMMIMMIMMNYBOTIMMIMM
2700189024301958168812151875133012151350
20001400180014501250900150010009001000
Financial InstrumentsEurodollarTreasury BondsTreasury Bonds, MiniTreasury Notes, 10-yrTreasury Notes, MiniTreasury Notes 5-yrTreasury Notes 2-yrMuni BondsTreasury BondsTreasury Notes 10-yrTreasury Notes 5-yr
IMMCBOTCBOTCBOTCBOTCBOTCBOTCBOTEurex USEurex USEurex US
94517558781178574810743121520151365975
700130065085042560055090015501050750
Stock IndexDow Jones Average $10Dow Jones Average $5S&P 500 IndexS&P 500 E-miniNasdaq 100 IndexNasdaq 100 E-miniNikkei 225Value Line 100Mid CapRussell 2000
CBOTCBOTIOMIOMIOMIOMIOMKCBTIOMIOM
50002500200004000187503750406345001750017500
40002000160003200150003000325036001400014000
Other IndexesCRB Index
NYFE
2400
2400
MetalsCopper, High GradeGoldSilverPlatinumPalladium
COMEXCOMEXCOMEXNYMEXNYMEX
27002025270027002700
20001500200020002000
271
Appendix C: Speculative Margins
U.S. Markets (Continued)Exchange
Original
Maintenance
EnergyCrude Oile-miNY Crude OilGasoline, unleadedHeating OilNatural Gase-miNY Natural Gas
NYMEXNYMEXNYMEXNYMEXNYMEXNYMEX
4725236347255,063101255063
350017503500375075003750
Grains and FiberCornMini CornWheatWheatWheatSoybeansMini SoybeansSoybean MealSoybean OilOatsCotton
CBOTCBOTCBOTKCBTMPLSCBOTCBOTCBOTCBOTCBOTNYBOT
3386867562565016203247438784051680
2505050050050012002405506503001200
Livestock & MeatsCattle, LiveCattle, FeederFrozen BelliesHogs, Lean
CMECMECMECME
1418195816201080
105014501200800
FoodsSugarCoffee “C”Cocoa (Metric)Orange Juice
NYBOTNYBOTNYBOTNYBOT
700262516801050
50018751200750
Forest ProductsLumber
CME
1650
1100
Security FuturesSecurity futures margins are 20% of the contract value, based on the previous day’ssettlement price; some contracts may be higher.Source of data: Futures and options exchanges. This information is believed to be reliable.Lind-Waldock cannot be held responsible for either its accuracy or its completeness.
272
THE COMPLETE GUIDE TO FUTURES TRADING
Foreign Markets
Short SterlingEuribor EILong GiltEuro-BundDAXFT-SE 100 IndexBrent Crude OilCAC40 IXAustralian Bond 10-yr AKAustralian T-Bill AFNikkei IndexMini JGBHang Seng
Exchange
Original
Maintenance
LIFFELIFFELIFFEEurexEurexLIFFEIPEMATIFSydneySydneySGXSGXHKFE
£270=C540£1270=C1400=C7700£1300$3370=C2250AD2000AD600¥262500¥108000HK$40750
£270=C540£1270=C1400=C7700£1300$3370=C2250AD2000AD600¥210000¥80000HK$40750
Source of data: Futures and options exchanges. This information is believed to be reliable.Lind-Waldock cannot be held responsible for either its accuracy or its completeness.
Glossary
T
his glossary is a compilation of industry terms derived from a number ofsources. The definitions are not meant to state or suggest the correct legalsignificance or meaning of any word or phrase. The terms and definitionswere collected to help enhance your understanding of the futures and options language used in this book.arbitrage 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.arbitration The procedure of settling disputes between members, or betweenmembers and customers.assignment To make an option seller perform his or her obligation to assumea short futures position (as a seller of a call option) or a long futures position(as a seller of a put option).associated person (AP) An individual who solicits orders, customers, or customer funds (or who supervises persons performing such duties) on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor,or a commodity pool operator.at-the-money option An option with a strike price that is equal, or approximately equal, to the current market price of the underlying futures contract.back months The futures or options on futures months being traded that arefurthest from expiration.
273
274
GLOSSARY
bar chart A chart that graphs the high, low, and settlement prices for a specifictrading session over a given period of time.basis The difference between the current cash price and the futures price of thesame commodity. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.bear
One who believes prices will move lower.
bear market
A market in which prices are declining.
bear spread In most commodities and financial instruments, the term refers toselling the nearby contract month and buying the deferred contract, to profit froma change in the price relationship.bid Indicates a willingness to buy a futures or options contract at a specifiedprice. Opposite of offer.broker A company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.bull
One who expects prices to rise.
bull market
A market in which prices are rising.
bull spread In most commodities and financial instruments, the term refersto buying the nearby month and selling the deferred month, to profit from thechange in the price relationship.butterfly spread The placing of two interdelivery spreads in opposite directions with the center delivery month common to both spreads.buy (buy order) A transaction type that indicates you wish to make a purchaseor to go long. The opposite of selling or going short.buy on closerange.
To buy at the end of a trading session at a price within the closing
buy on opening To buy at the beginning of a trading session at a price withinthe opening range.call An option to buy a commodity, security, or futures contract at a specificprice at any time between now and the expiration of the option contract.call option An option that gives the option buyer the right, but not the obligation, to purchase (go long) the underlying futures contract at the strike price on orbefore the expiration date.cancel ordermarket.
An order that removes a customer’s previous order from the
carrying charge (cost of carry) For physical commodities such as grains andmetals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differen-
275
Glossary
tial between the yield on a cash instrument and the cost necessary to buy theinstrument.carryover Grain and oilseed commodities not consumed during the marketingyear and remaining in storage at year’s end. These stocks are carried over into thenext marketing year and added to the stocks produced during that crop year.cash commodity An actual physical commodity someone is buying or selling,such as soybeans, corn, gold, or Treasury bonds. Also referred to as actuals.cash contract A sales agreement for either immediate or future delivery of theactual product.cash market A place where people buy and sell the actual commodities, such asa grain elevator or bank. See forward contract; spot.cash settlement Transactions generally involving index-based futures contractsthat are settled in cash based on the actual value of the index on the last trading day.Cash settlement is in contrast to those contracts that specify the delivery of a commodity or financial instrument.charting The use of charts to analyze market behavior and anticipate futureprice movements. Those who use charting as a trading method plot such factors ashigh, low, and settlement prices, average price movements, volume, and open interest. Two basic price charts are bar charts and point-and-figure charts. See technical analysis.clear The process by which a clearinghouse maintains records of all trades andsettles margin flow on a daily mark-to-market basis for its clearing members.clearinghouse An agency or separate corporation of a futures exchange that isresponsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data. Clearinghousesact as third parties to all futures and options contracts, acting as a buyer to everyclearing member seller and a seller to every clearing member buyer.clearing member A member of a clearinghouse. Memberships in clearing organizations are usually held by companies. Clearing members are responsible for thefinancial commitments of customers that clear through their firm.close The period at the end of the trading session. Sometimes used to refer tothe closing range. See opening.closing range A range of prices at which transactions took place at the closingof the market; buy and sell orders during the closing period may have been filled atany point within such a range.commission fee A fee charged by a broker for executing a transaction.commodity An article of commerce or a product that can be used for commerce. In a narrow sense, products traded on an authorized commodity exchange.
276
GLOSSARY
The types of commodities include agricultural products, metals, petroleum, foreign currencies, and financial instruments and indexes, to name a few.Commodity Futures Trading Commission (CFTC) A federal regulatoryagency established under the Commodity Futures Trading Commission Act, asamended in 1974, that oversees futures trading in the United States.commodity pool An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts or commodity options.commodity pool operator (CPO) An individual or organization that operatesor solicits funds for a commodity pool.commodity trading advisor (CTA) A person who, for compensation or profit,directly or indirectly advises others as to the value or the advisability of buying orselling futures contracts or commodity options. Advising indirectly includes exercising trading authority over a customer’s account as well as providing recommendations through written publications or other media.contract Unit of trading for a financial or commodity future. Also, actual bilateral agreement between the parties (buyer and seller) of a futures or options onfutures transaction as defined by an exchange.contract month The specified month in which futures contracts may be satisfied by making or accepting delivery. See delivery month.convergence A term referring to cash and futures prices tending to come together (i.e., the basis approaches zero) as the futures contract nears expiration.conversion factor A factor used to equate the price of Treasury bond andTreasury note futures contracts with the various cash Treasury bonds and Treasury notes eligible for delivery.coupon The interest rate on a debt instrument expressed in terms of a percenton an annualized basis that the issuer guarantees to pay the holder until maturity.crop (marketing) year The time span from harvest to harvest for agriculturalcommodities. The crop marketing year varies slightly with each agricultural commodity, but it tends to begin at harvest and end before the next year’s harvest. Forexample, the marketing year for soybeans begins September 1 and ends August 31.The futures contract month of November represents the first major new-crop marketing month, and the contract month of July represents the last major old-cropmarketing month for soybeans.crop reports Reports compiled by the U.S. Department of Agriculture on various agricultural commodities that are released throughout the year. Information inthe reports includes estimates on planted acreage, yield, and expected production,as well as a comparison of production from previous years.cross-hedging Hedging a cash commodity using a different but related futurescontract when there is no futures contract for the cash commodity being hedged
277
Glossary
and the cash and futures markets follow similar price trends—for example, usingsoybean meal futures to hedge fish meal.current yieldinstrument.
The ratio of the coupon to the current market price of the debt
customer margin Within the futures industry, financial guarantees required ofboth buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations. Futures commission merchants are responsible for overseeing customer margin accounts.daily trading limitfor a contract.
The maximum price range set by the exchange each day
day order An order that is placed for execution during only one trading session. If the order cannot be executed during that session, it is automaticallycanceled.day trade The purchase and sale of a futures or an options contract in the sameday session, thus ending the day with no established position in the market (i.e.,being flat).deferred delivery month The more distant month(s) in which futures tradingis taking place, as distinguished from the nearby delivery month.deliverable grades The standard grades of commodities or instruments listedin the rules of the exchanges that must be met when delivering cash commoditiesagainst futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greaterquality than the standard called for by the exchange.delivery The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchanges has specific procedures for delivery of a cash commodity. Some futures contracts, such as stockindex contracts, are cash-settled.delivery month A specific month in which delivery may take place under theterms of a futures contract. Also referred to as contract month.delivery points The locations and facilities designated by a futures exchangewhere stocks of a commodity may be delivered in fulfillment of a futures contract,under procedures established by the exchange.delta A measure of how much an option premium changes, given a unit changein the underlying futures price.differentials Price differences between classes, grades, and delivery locationsof various stocks of the same commodity.disclosure document A statement that must be provided to prospective customers that describes trading performance, strategy, fees, performance, and so on.
278
GLOSSARY
discount method A method of paying interest by issuing a security at less thanpar and repaying par value at maturity. The difference between the higher parvalue and the lower purchase price is the interest.discretionary account An arrangement by which the holder of the accountgives written power of attorney to another person, often his or her broker, to maketrading decisions. Also known as a controlled or managed account.Eurodollars U.S. dollars on deposit with a bank outside of the United Statesand, consequently, outside the jurisdiction of the United States. The bank could beeither a foreign bank or a subsidiary of a U.S. bank.European terms A method of quoting exchange rates that measures theamount of foreign currency needed to buy one U.S. dollar (i.e., foreign currencyunit per dollar).exchange of futures for physicals (EFP) A transaction generally used by twohedgers who want to exchange futures for cash positions. Also referred to as“against actuals” or “versus cash.”exercise The action taken by the holder of a call option who wishes to purchasethe underlying futures contract or by the holder of a put option who wishes to sellthe underlying futures contract.exercise price The price at which the futures contract underlying a call orput option can be purchased (if a call) or sold (if a put). Also referred to asstrike price.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.extrinsic value See time value.Federal Reserve System A central banking system in the United States, created by the Federal Reserve Act in 1913, designed to assist the nation in attainingits economic and financial goals. The structure of the Federal Reserve System includes a Board of Governors, the Federal Open Market Committee, and 12 regional Federal Reserve Banks.fill-or-kill (FOK) A customer order that is a price limit order that must be filledimmediately or canceled.financial instrument There are two basic types: (1) a debt instrument, which isa loan with an agreement to pay back funds with interest; (2) an equity security,which is a share of stock in a company.first notice day The first day on which a notice of intent to deliver a commodityin fulfillment of a given month’s futures contract can be made by the clearinghouseto a buyer. The clearinghouse also informs the seller who they have been matchedup with.
Glossary
279floor broker An individual on an exchange trading floor who executes ordersfor the purchase or sale of any commodity futures or options contract on any contract market for any other person. A floor broker executing orders must be licensed by the CFTC.floor trader An exchange member who generally trades only for his/her ownaccount or for an account controlled by him/her. Also referred to as a local.forex market An over-the-counter market where buyers and sellers conductforeign exchange business by telephone and other means of communication. Alsoreferred to as foreign exchange market.forward contract A cash contract in which a seller agrees to deliver a specificcash commodity to a buyer sometime in the future. Forward contracts, in contrastto futures contracts, are privately negotiated and are not standardized.fundamental analysis A method of anticipating future price movement usingsupply and demand information.futures A term used to designate all contracts covering the purchase and sale offinancial instruments or physical commodities for future delivery on a commodityfutures exchange.futures commission merchant (FCM) A firm or person engaged in solicitingor accepting and handling orders for the purchase or sale of futures contracts,subject to the rules of a futures exchange, who, in connection with solicitation oracceptance of orders, accepts any money or securities to margin any resultingtrades or contracts.futures contract A legally binding agreement, made on a futures exchange, tobuy or sell a commodity or financial instrument sometime in the future. Futurescontracts are standardized according to the quality, quantity, and delivery time andlocation.futures exchange A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futurescontracts.gamma A measurement of how fast delta changes, given a unit change in the underlying futures price.good till canceled (GTC) An order worked by a broker until it can be filled oruntil canceled. Same as open order.grantor A person who sells an option and assumes either the obligation to sell(in the case of a call) or to buy (in the case of a put) the underlying futures contract at the exercise price. Also referred to as an option seller or a writer.gross domestic product (GDP) The value of all final goods and services produced by an economy over a particular time period, normally a year.
280
GLOSSARY
gross national product (GNP) Gross domestic product plus the income accruing to domestic residents as a result of investments abroad less income earnedin domestic markets accruing to foreigners abroad.gross processing margin (GPM) The difference between the cost of soybeansand the combined sales income of the processed soybean oil and meal.hedge The purchase or sale of a futures contract as a temporary substitute for acash 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.hedger An individual or company owning or planning to own a cash commodity—such as corn, soybeans, wheat stocks, or U.S. Treasury bonds, notes, or bills—and concerned that the cost of the commodity may change before either buying orselling it in the cash market. A hedger achieves protection against changing cashprices by purchasing (or selling) futures contracts of the same or similar commodity and later offsetting that position by selling (or purchasing) futures contracts ofthe same quantity and type as the initial transaction.hedging The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers usethe futures markets to protect their businesses from adverse price changes. Seelong hedge; purchasing hedge; selling hedge; short hedge.high The highest price for a particular futures contract over a specified timeperiod.holder One who purchases an option.horizontal spread The purchase of either a call option or a put option and thesimultaneous sale of the same type of option with typically the same strike pricebut with a different expiration month. Also referred to as a calendar spread.initial margin The minimum value on deposit in your account to establish anew futures or options position, or to add to an existing position. Initial marginamount levels differ by contract. A brokerage firm sets the level of initial marginrequired, based on exchange-set minimums, and may change it at any time. Increases or decreases in initial margin levels reflect anticipated or actual changesin market volatility.intercommodity spread The purchase of a given delivery month of one futuresmarket and the simultaneous sale of the same delivery month of a different, but related, futures market.interdelivery spread The purchase of one delivery month of a given futurescontract and simultaneous sale of another delivery month of the same commodityon the same exchange. Also referred to as an intramarket or calendar spread.intermarket spread The sale of a given delivery month of a futures contract onone exchange and the simultaneous purchase of the same delivery month and futures contract on another exchange.
281
Glossary
in-the-money option An option with intrinsic value. A call option is in-themoney if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price ofthe underlying futures contract. See intrinsic value.intrinsic value
The amount by which an option is in-the-money.
introducing broker (IB) A person or organization that solicits or accepts orders to buy or sell futures contracts or commodity options but does not acceptmoney or other assets from customers to support such orders.inverted market A futures market in which the relationship between two delivery months of the same commodity is abnormal.last trading day The final day when trading may occur in a given futures or options contract month. Futures contracts outstanding at the end of the last tradingday must be settled by delivery of the underlying commodity or securities or byagreement for monetary settlement, in some cases by exchanges of futures forphysicals (EFPs).leverage The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.limit order An order given for an options or futures trade specifying a certainmaximum (or minimum) price, beyond which the order (buy or sell) is not to beexecuted.limit price
See maximum price fluctuation.
linkage The ability to buy (or sell) contracts on one exchange, such as theChicago Mercantile Exchange, and later sell (or buy) them on another exchange,such as the Singapore Exchange.liquid A characteristic of a security or commodity market with enough unitsoutstanding to allow large transactions without a substantial change in price. Institutional investors are inclined to seek out liquid investments so that their tradingactivity will not influence the market price.liquidate To sell (or purchase) futures contracts of the same delivery monthpurchased (or sold) during an earlier transaction or to make (or take) delivery ofthe cash commodity represented by the futures contract. See offset.long One who has bought a futures or options on futures contract to establish amarket 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 againstan advance in the cash price. See hedge; short hedge.low
The lowest price of a specified time period for a particular futures contract.
maintenance margin The minimum value required in an account in order tocontinue to hold a position. The maintenance margin is typically less than the
282
GLOSSARY
initial margin, and also differs by contract. If your account falls below the maintenance margin requirement, you will receive a margin call. If you wish to continue to hold the position, you will be required to restore your account to the fullinitial margin level (not to the maintenance margin level).managed futures Represents an industry comprised of professional moneymanagers known as commodity trading advisors, who manage client assets usingglobal futures markets as an investment medium.margin
See performance bond.
margin call A call from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.market if touched (MIT) A price order that automatically becomes a marketorder if the price is reached.market on close (MOC) An order to buy or sell at the end of the trading session at a price within the closing range of prices.market order (MKT) An order to buy or sell a specified commodity, including quantity and delivery month, at the best possible price available, as soon aspossible.mark-to-market The daily adjustment of margin accounts to reflect profits andlosses based on that day’s price changes in each market.maximum price fluctuation The maximum amount the contract price canchange, up or down, during one trading session, as stipulated by exchange rules.Also known as the daily price limit or limit price.minimum price fluctuation The smallest increment of price movement possible in trading a given contract, often referred to as a tick.moving average charts A statistical price analysis method of recognizing different price trends. A moving average is calculated by adding the closing prices fora predetermined number of days and then dividing by the number of days.National Futures Association (NFA) An industrywide, self-regulatory organization for futures and options markets. The primary responsibilities of theNFA are to enforce ethical standards and customer protection rules, screen futures professionals for membership, audit and monitor professionals for financial and general compliance rules, and provide for arbitration of futures-relateddisputes.nearby The nearest active trading month of a futures or options on futures contract. Also referred to as the lead month.net liquidation value Total trade equity plus net options value, on a marked-tomarket basis. It is the value of your account if you were to liquidate all positions inyour account. This information appears on your account statement.
283
Glossary
net options valuemarked to market.
The credit or debit value of all option positions combined,
notice day The second day of the three-day delivery process when the clearingcorporation matches the buyer with the oldest reported long position to the delivering seller and notifies both parties. See first notice day.offer Indicates a willingness to sell a futures or options contract at a specifiedprice. Opposite of bid.offset To take a second futures or options position opposite to the initial oropening position. This means selling, if one has bought, or buying, if one has sold,a futures or option on a futures contract. See liquidate.open interest Total number of futures or options on futures contracts that havenot yet been offset or fulfilled by delivery. An indicator of the depth or liquidity ofa 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.Same as good till canceled (GTC).open outcry Method of public auction for making verbal bids and offers in thetrading pits or rings of futures exchanges.open trade equity The difference between the initial trade price and the lasttick of the market. It is marked to market. It is the value of the positions you areholding, if you were to close the position at the last tick.opening The period at the beginning of the trading session during which alltransactions are considered made or first transactions were completed.opening range The range of prices at which the first bids and offers were madeor first transactions were completed.option 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 givenmarket at a specified price at any time between now and the expiration of the option contract.option buyer The purchaser of either a call or a put option. Option buyers receive the right, but not the obligation, to assume a futures position at the option’sstrike price. Also referred to as the holder.option premium The price of an option. The sum of money that the optionbuyer pays and the option seller receives for the rights granted