Abandon: The act of an option holder in electing not to exercise or offset an option.

Accommodation Trading: Non-competitive trading entered into by a trader, usually to assist another with illegal trades.

Actuals: The physical or cash commodity, as distinguished from a futures contract. See Cash and Spot Commodity.

Agency Bond: A debt security issued by a government-sponsored enterprise such as Fannie Mae or Freddie Mac, designed to resemble a US Treasury bond.

Agency Note: A debt security issued by a government-sponsored enterprise such as Fannie Mae or Freddie Mac, designed to resemble a US Treasury note.

Aggregation: The principle under which all futures positions owned or controlled by one trader (or group of traders acting in concert) are combined to determine reporting status and compliance with speculative position limits. See CFTC Backgrounder: Speculative Limits, Hedging, and Aggregation.

Agricultural Trade Option Merchant: Any person that is in the business of soliciting or entering option transactions involving an enumerated agricultural commodity that are not conducted or executed on or subject to the rules of an exchange.

Allowances: The discounts (premiums) allowed for grades or locations of a commodity lower (higher) than the par (or basis) grade or location specified in the futures contract. See Differentials.

American Option: An option that can be exercised at any time prior to or on the expiration date. See European Option.

Approved Delivery Facility: Any bank, stockyard, mill, storehouse, plant, elevator, or other depository that is authorized by an exchange for the delivery of commodities tendered on futures contracts.

Arbitrage: A strategy involving the simultaneous purchase and sale of identical or equivalent commodity futures contracts or other instruments across two or more markets in order to benefit from a discrepancy in their price relationship. In a theoretical efficient market, there is a lack of opportunity for profitable arbitrage. See Spread.

Arbitration: A process for settling disputes between parties that is less structured than court proceedings. NFA’s arbitration program provides a forum for resolving futures-related disputes between NFA members or between NFA members and customers. Other forums for customer complaints include the American Arbitration Association.

Artificial Price: A futures price that has been affected by a manipulation and is thus higher or lower than it would have been if it reflected the forces of supply and demand.

Asian Option: An exotic option whose payoff depends on the average price of the underlying asset during some portion of the life of the option.

Assignable Contract: A contract that allows the holder to convey his rights to a third party. Exchange-traded contracts are not assignable.

Assignment: Designation by a clearing organization of an option writer who will be required to buy (in the case of a put) or sell (in the case of a call) the underlying futures contract or security when an option has been exercised, especially if it has been exercised early.

Associated Person (AP): An individual who solicits or accepts (other than in a clerical capacity) orders, discretionary accounts, or participation in a commodity pool, or supervises any individual so engaged, on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor, a Commodity Pool Operator, or an Agricultural Trade Option Merchant.

At-the-Market: An order to buy or sell a futures contract at whatever price is obtainable when the order reaches the trading facility. See Market Order.

At-the-Money: When an option's strike price is the same as the current trading price of the underlying commodity, the option is at-the-money.

Audit Trail: The record of trading information identifying, for example, the brokers participating in each transaction, the firms clearing the trade, the terms and time of the trade, and, ultimately, and when applicable, the customers involved.

Automatic Exercise: A provision in an option contract specifying that it will be exercised automatically on the expiration date if it is in-the-money by a specified amount, absent instructions to the contrary.

Back Months: Futures delivery months other than the spot or front month (also called deferred months).

Back pricing: Fixing the price of a commodity for which the commitment to purchase has been made in advance. The buyer can fix the price relative to any monthly or periodic delivery using the futures markets.

Back Spread: A delta-neutral ratio spread in which more options are bought than sold. A back spread will be profitable if volatility increases. See Delta.

Backwardation: Market situation in which futures prices are progressively lower in the distant delivery months. For instance, if the gold quotation for January is $360.00 per ounce and that for June is $355.00 per ounce, the backwardation for five months against January is $5.00 per ounce. (Backwardation is the opposite of contango). See Inverted Market.

Banker's Acceptance: A draft or bill of exchange accepted by a bank where the accepting institution guarantees payment. Used extensively in foreign trade transactions.

Basis: The difference between the spot or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity. Basis is usually computed in relation to the futures contract next to expire and may reflect different time periods, product forms, grades, or locations.

Basis Grade: The grade of a commodity used as the standard or par grade of a futures contract.

Basis Point: The measurement of a change in the yield of a debt security. One basis point equals 1/100 of one percent.

Basis Quote: Offer or sale of a cash commodity in terms of the difference above or below a futures price (e.g., 10 cents over December corn).

Basis Risk: The risk associated with an unexpected widening or narrowing of basis between the time a hedge position is established and the time that it is lifted.

Basis Swap: A swap whose cash settlement price is calculated based on the basis between a futures contract and the spot price of the underlying commodity or a closely related commodity on a specified date.

Bear: One who expects a decline in prices. The opposite of a bull. A news item is considered bearish if it is expected to result in lower prices.

Bear Market: A market in which prices generally are declining over a period of months or years. Opposite of Bull Market.

Bear Market Rally: A temporary rise in prices during a bear market. See Correction.

Bear Spread: (1) A strategy involving the simultaneous purchase and sale of options of the same class and expiration date, but different strike prices. In a bear spread, the option that is purchased has a lower delta than the option that is bought. For example, in a call bear spread, the purchased option has a higher exercise price than the option that is sold. Also called Bear Vertical Spread. (2) The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation does not materialize. In agricultural products, this is accomplished by selling a nearby delivery and buying a deferred delivery

Bear Vertical Spread: See Bear Spread.

Beta (Beta Coefficient): A measure of the variability of rate of return or value of a stock or portfolio compared to that of the overall market.

Bid: An offer to buy a specific quantity of a commodity at a stated price.

Blackboard Trading: The practice, no longer used, of selling commodities from a blackboard on a wall of a commodity exchange.

Black-Scholes Model: An option pricing model initially developed by Fischer Black and Myron Scholes for securities options and later refined by Black for options on futures.

Block Trade: A large transaction that is negotiated off a trading floor or facility and then executed on an exchange’s trading facility, as permitted under exchange rules. For more information, see CFTC Advisory: Alternative Execution, or Block Trading, Procedures for the Futures Industry.

Board Order: See Market-if-Touched Order.

Board of Trade: Any organized exchange or other trading facility for the trading of commodities.

Boiler Room: An enterprise that often is operated out of inexpensive, low-rent quarters (hence the term "boiler room"), that uses high pressure sales tactics (generally over the telephone), and possibly false or misleading information to solicit generally unsophisticated investors.

Booking the Basis: A forward pricing sales arrangement in which the cash price is determined either by the buyer or seller within a specified time. At that time, the previously-agreed basis is applied to the then-current futures quotation.

Book Transfer: A series of accounting or bookkeeping entries used to settle a series of cash market transactions.

Box Spread: An option position in which the owner establishes a long call and a short put at one strike price and a short call and a long put at another strike price, all of which are in the same contract month in the same commodity.

Break: A rapid and sharp price decline.

Broad-Based Security Index: Any index of securities that does not meet the legal definition of Narrow-Based Security Index.

Broker: A person paid a fee or commission for executing buy or sell orders for a customer. In commodity futures trading, the term may refer to: (1) Floor Broker — a person who actually executes orders on the trading floor of an exchange; (2) Account Executive or Associated Person — the person who deals with customers in the offices of Futures Commission Merchants; or (3) the Futures Commission Merchant.

Broker Association: Two or more persons with exchange trading privileges who (1) share responsibility for executing customer orders; (2) have access to each other's unfilled customer orders as a result of common employment or other types of relationships; or (3) share profits or losses associated with their brokerage or trading activity.

Bucketing: Directly or indirectly taking the opposite side of a customer's order into a broker's own account or into an account in which a broker has an interest, without open and competitive execution of the order on an exchange.

Bucket Shop: A brokerage enterprise that “books" (i.e., takes the opposite side of) a customer's order without actually having it executed on an exchange.

Bull: One who expects a rise in prices. The opposite of bear. A news item is considered bullish if it is expected to result in higher prices.

Bullion: Bars or ingots of precious metals, usually cast in standardized sizes.

Bull Market: A market in which prices generally are rising over a period of months or years. Opposite of Bear Market.

Bull Spread: (1) A strategy involving the simultaneous purchase and sale of options of the same class and expiration date but different strike prices. In a bull vertical spread, the purchased option has a higher delta than the option that is sold. For example, in a call bull spread, the purchased option has a lower exercise price than the sold option. Also called Bull Vertical Spread. (2) The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a rise in prices but at the same time limiting the potential loss if this expectation is wrong. In agricultural commodities, this is accomplished by buying the nearby delivery and selling the deferred.

Bull Vertical Spread: See Bull Spread.

Buoyant: A market in which prices have a tendency to rise easily with a considerable show of strength.

Bunched Order: A discretionary order entered on behalf of multiple customers.

Butterfly Spread: A three-legged option spread in which each leg has the same expiration date but different strike prices. For example, a butterfly spread in soybean call options might consist of one long call at a $5.50 strike price, two short calls at a $6.00 strike price, and one long call at a $6.50 strike price.

Buyer: A market participant who takes a long futures position or buys an option. An option buyer is also called a taker, holder, or owner.

Buyer's Call: A purchase of a specified quantity of a specific grade of a commodity at a fixed number of points above or below a specified delivery month futures price with the buyer allowed a period of time to fix the price either by purchasing a futures contract for the account of the seller or telling the seller when he wishes to fix the price. See Seller’s Call.

Buyer's Market: A condition of the market in which there is an abundance of goods available and hence buyers can afford to be selective and may be able to buy at less than the price that previously prevailed. See Seller's Market.

Buying Hedge (or Long Hedge): Hedging transaction in which futures contracts are bought to protect against possible increases in the cost of commodities. See Hedging.

Buy (or Sell) On Close: To buy (or sell) at the end of the trading session within the closing price range.

Buy (or Sell) On Opening: To buy (or sell) at the beginning of a trading session within the open price range.

C & F: "Cost and Freight" paid to a point of destination and included in the price quoted; same as C.A.F.

Call: (1) An option contract giving the buyer the right but not the obligation to purchase a commodity or other asset or to enter into a long futures position; (2) a period at the opening and the close of some futures markets in which the price for each futures contract is established by auction; or (3) the requirement that a financial instrument be returned to the issuer prior to maturity, with principal and accrued interest paid off upon return. See Buyer’s Call, Seller’s Call.

Call Cotton: Cotton bought or sold on call. See Buyer’s Call, Seller’s Call.

Called: Another term for exercised when an option is a call. In the case of an option on a physical, the writer of a call must deliver the indicated underlying commodity when the option is exercised or called. In the case of an option on a futures contract, a futures position will be created that will require margin, unless the writer of the call has an offsetting position.

Call Rule: An exchange regulation under which an official bid price for a cash commodity is competitively established at the close of each day's trading. It holds until the next opening of the exchange.

Capping: Effecting transactions in an instrument underlying an option shortly before the option's expiration date to depress or prevent a rise in the price of the instrument so that previously written call options will expire worthless, thus protecting premiums previously received. See Pegging.

Carrying Broker: A holder of trading privileges at an exchange, usually a Futures Commission Merchant, through whom another broker or customer elects to clear all or part of its trades.

Carrying Charges: Cost of storing a physical commodity or holding a financial instrument over a period of time. These charges include insurance, storage, and interest on the deposited funds, as well as other incidental costs. It is a carrying charge market when there are higher futures prices for each successive contract maturity. If the carrying charge is adequate to reimburse the holder, it is called a "full charge." See Negative Carry, Positive Carry, and Contango.

Cash Commodity: The physical or actual commodity as distinguished from the futures contract, sometimes called Spot Commodity or Actuals.

Cash Forward Sale: See Forward Contract.

Cash Market: The market for the cash commodity (as contrasted to a futures contract) taking the form of: (1) an organized, self-regulated central market (e.g., a commodity exchange); (2) a decentralized over-the-counter market; or (3) a local organization, such as a grain elevator or meat processor, which provides a market for a small region.

Cash Price: The price in the marketplace for actual cash or spot commodities to be delivered via customary market channels.

Cash Settlement: A method of settling certain futures or option contracts whereby the seller (or short) pays the buyer (or long) the cash value of the commodity traded according to a procedure specified in the contract. Also called Financial Settlement, especially in energy derivatives.

CCC: See Commodity Credit Corporation.

CD: See Certificate of Deposit.

CEA: Commodity Exchange Act or Commodity Exchange Authority.

Certificate of Deposit (CD): A time deposit with a specific maturity evidenced by a certificate. Large-denomination CDs are typically negotiable.

CFTC: See Commodity Futures Trading Commission.

CFO: Cancel Former Order.

Certificated or Certified Stocks: Stocks of a commodity that have been inspected and found to be of a quality deliverable against futures contracts, stored at the delivery points designated as regular or acceptable for delivery by an exchange. In grain, called "stocks in deliverable position." See Deliverable Stocks.

Changer: Formerly, a clearing member of both the Mid-America Commodity Exchange (MidAm) and another futures exchange who, for a fee, would assume the opposite side of a transaction on the MidAm by taking a spread position between the MidAm and the other futures exchange that traded an identical, but larger, contract. Through this service, the changer provided liquidity for the MidAm and an economical mechanism for arbitrage between the two markets. The MidAm was a subsidiary of the Chicago Board of Trade (CBOT). In recent years, the CBOT has been de-listing MidAm contracts to the CBOT and re-listing them as Mini contracts. The last of these transfers occurred in 2003. The CBOT still uses changers for former MidAm contracts that are traded on an open outcry platform.

Charting: The use of graphs and charts in the technical analysis of futures markets to plot trends of price movements, average movements of price, volume of trading, and open interest.

Chartist: Technical trader who reacts to signals derived from graphs of price movements.

Cheapest-to-Deliver: Usually refers to the selection of a class of bonds or notes deliverable against an expiring bond or note futures contract. The bond or note that has the highest implied repo rate is considered cheapest to deliver.

Chooser Option: An exotic option that is transacted in the present, but that at some specified future date is chosen to be either a put or a call option.

Churning: Excessive trading of a discretionary account by a person with control of the account for the purpose of generating commissions while disregarding the interests of the customer.

Circuit Breakers: A system of coordinated trading halts and/or price limits on equity markets and equity derivative markets designed to provide a cooling-off period during large, intraday market declines. The first known use of the term circuit breaker in this context was in the Report of the Presidential Task Force on Market Mechanisms (January 1988), which recommended that circuit breakers be adopted following the market break of October 1987.

C.I.F: Cost, insurance, and freight paid to a point of destination and included in the price quoted.

Class (of options): Options of the same type (i.e., either puts or calls, but not both) covering the same underlying futures contract or other asset (e.g., a March call with a strike price of 62 and a May call with a strike price of 58).

Clearing: The procedure through which the clearing organization becomes the buyer to each seller of a futures contract, and the seller to each buyer for clearing members.

Clearing Association: See Clearing Organization.

Clearing House: See Clearing Organization.

Clearing Member: A member of a Clearing Organization. All trades of a non-clearing member must be processed and eventually settled through a clearing member.

Clearing Organization: An entity through which futures and other derivative transactions are cleared and settled. It is also charged with assuring the proper conduct of each contract’s delivery procedures and the adequate financing of trading. A clearing organization may be a division of a particular exchange, an adjunct or affiliate thereof, or a freestanding entity. Also called a clearing house, multilateral clearing organization, or clearing association. See Derivatives Clearing Organization.

Clearing Price: See Settlement Price.

Close: The exchange-designated period at the end of the trading session during which all transactions are considered made "at the close." See Call.

Closing-Out: Liquidating an existing long or short futures or option position with an equal and opposite transaction. Also known as Offset.

Closing Price (or Range): The price (or price range) recorded during trading that takes place in the final period of a trading session’s activity that is officially designated as the "close."

Combination: Puts and calls held either long or short with different strike prices and/or expirations. Types of combinations include straddles and strangles.

Commercial: An entity involved in the production, processing, or merchandising of a commodity.

Commercial Grain Stocks: Domestic grain in store in public and private elevators at important markets and grain afloat in vessels or barges in lake and seaboard ports.

Commercial Paper: Short-term promissory notes issued in bearer form by large corporations, with maturities ranging from 5 to 270 days. Since the notes are unsecured, the commercial paper market generally is dominated by large corporations with impeccable credit ratings.

Commission: (1) The charge made by a commission house for buying and selling commodities; or (2) the fee charged by a futures broker for the execution of an order. Note: when capitalized, the Commission usually refers to the CFTC.

Commitments of Traders Report (COT): A weekly report from the CFTC providing a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Open interest is broken down by aggregate commercial, non-commercial, and non-reportable holdings. See CFTC Backgrounder : The Commitments of Traders Report (COT).

Commitments: See Open Interest.

Commodity: A commodity, as defined in the Commodity Exchange Act, includes the agricultural commodities enumerated in Section 1a(4) of the Commodity Exchange Act and all other goods and articles, except onions as provided in Public Law 85-839 (7 U.S.C. § 13-1), a 1958 law that banned futures trading in onions, and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.

Commodity Credit Corporation: A government-owned corporation established in 1933 to assist American agriculture. Major operations include price support programs, foreign sales, and export credit programs for agricultural commodities.

Commodity Exchange Act: The Commodity Exchange Act, 7 U.S.C. § 1, et seq., provides for the federal regulation of commodity futures and options trading. See Commodity Futures Modernization Act.

Commodity Exchange Authority: A regulatory agency of the US Department of Agriculture established to administer the Commodity Exchange Act prior to 1975. The Commodity Exchange Authority was the predecessor of the Commodity Futures Trading Commission.

Commodity Exchange Commission: A commission consisting of the Secretary of Agriculture, Secretary of Commerce, and the Attorney General, responsible for administering the Commodity Exchange Act prior to 1975.

Commodity Futures Modernization Act: The Commodity Futures Modernization Act of 2000 (CFMA), Pub. L. No. 106-554, 114 Stat. 2763, reauthorized the Commodity Futures Trading Commission for five years and overhauled the Commodity Exchange Act to create a flexible structure for the regulation of futures and options trading. Significantly, the CFMA codified an agreement between the CFTC and the Securities and Exchange Commission to repeal the 18-year-old ban on the trading of single stock futures.

Commodity Futures Trading Commission (CFTC): The Federal regulatory agency established by the Commodity Futures Trading Act of 1974 to administer the Commodity Exchange Act.

Commodity-Linked Bond: A bond in which payment to the investor is dependent to a certain extent on the price level of a commodity, such as crude oil, gold, or silver, at maturity.

Commodity Option: An option on a commodity or a futures contract.

Commodity Pool: An investment trust, syndicate, or similar form of enterprise operated for the purpose of trading commodity futures or option contracts. See CFTC Backgrounder: Commodity Trading Advisors and Commodity Pool Operators.

Commodity Pool Operator (CPO): A person engaged in a business similar to an investment trust or a syndicate and who solicits or accepts funds, securities, or property for the purpose of trading commodity futures contracts or commodity options. The CPO either itself makes trading decisions on behalf of the pool or engages a commodity trading advisor to do so. See CFTC Backgrounder: Commodity Trading Advisors and Commodity Pool Operators.

Commodity Price Index: Index or average, which may be weighted, of selected commodity prices, intended to be representative of the markets in general or a specific subset of commodities, e.g., grains or livestock.

Commodity Trading Advisor (CTA): A person who, for pay, regularly engages in the business of advising others as to the value of commodity futures or options or the advisability of trading in commodity futures or options, or issues analyses or reports concerning commodity futures or options. See CFTC Backgrounder: Commodity Trading Advisors and Commodity Pool Operators.

Congestion: (1) A market situation in which shorts attempting to cover their positions are unable to find an adequate supply of contracts provided by longs willing to liquidate or by new sellers willing to enter the market, except at sharply higher prices (see Squeeze, Corner); (2) in technical analysis, a period of time characterized by repetitious and limited price fluctuations.

Consignment: A shipment made by a producer or dealer to an agent elsewhere with the understanding that the commodities in question will be cared for or sold at the highest obtainable price. Title to the merchandise shipped on consignment rests with the shipper until the goods are disposed of according to agreement.

Contango: Market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month; the opposite of backwardation.

Contract: (1) A term of reference describing a unit of trading for a commodity future or option; (2) an agreement to buy or sell a specified commodity, detailing the amount and grade of the product and the date on which the contract will mature and become deliverable.

Contract Grades:Those grades of a commodity that have been officially approved by an exchange as deliverable in settlement of a futures contract.

Contract Market: A board of trade or exchange designated by the Commodity Futures Trading Commission to trade futures or options under the Commodity Exchange Act. A contract market can allow both institutional and retail participants and can list for trading futures contracts on any commodity, provided that each contract is not readily susceptible to manipulation. Also called Designated Contract Market. See Derivatives Transaction Execution Facility.

Contract Month: See Delivery Month.

Contract Size: The actual amount of a commodity represented in a contract.

Contract Unit: See Contract Size.

Controlled Account: An account for which trading is directed by someone other than the owner. Also called a Managed Account or a Discretionary Account.

Convergence: The tendency for prices of physicals and futures to approach one another, usually during the delivery month. Also called a "narrowing of the basis".

Conversion: A position created by selling a call option, buying a put option, and buying the underlying instrument (for example, a futures contract), where the options have the same strike price and the same expiration. See Reverse Conversion.

Conversion Factors: Numbers published by futures exchanges to determine invoice prices for debt instruments deliverable against bond or note futures contracts. A separate conversion factor is published for each deliverable instrument. Invoice price = Contract Size X Futures Settlement Price X Conversion Factor + Accrued Interest.

Core Principle: A provision of the Commodity Exchange Act with which a Contract Market, Derivatives Transaction Execution Facility, or Derivatives Clearing Organization must comply on an ongoing basis. There are 18 Core Principles for Contract Markets, nine Core Principles for DTEFs, and 14 Core Principles for DCOs.

Corner: (1) Securing such relative control of a commodity that its price can be manipulated, that is, can be controlled by the creator of the corner; or (2) in the extreme situation, obtaining contracts requiring the delivery of more commodities than are available for delivery. See Squeeze, Congestion.

Corn-Hog Ratio: See Feed Ratio.

Correction: A temporary decline in prices during a bull market that partially reverses the previous rally. See Bear Market Rally.

Cost of Tender: Total of various charges incurred when a commodity is certified and delivered on a futures contract.

COT: See Commitments of Traders Report.

Counterparty: The opposite party in a bilateral agreement, contract, or transaction. In the retail foreign exchange (or forex) context, the party to which a retail customer sends its funds; lawfully, the party must be one of those listed in Section 2(c)(2)(B)(ii)(I)-(VI) of the Commodity Exchange Act.

Counter-Trend Trading: In technical analysis, the method by which a trader takes a position contrary to the current market direction in anticipation of a change in that direction.

Coupon (Coupon Rate): A fixed dollar amount of interest payable per annum, stated as a percentage of principal value, usually payable in semiannual installments.

Cover: (1) Purchasing futures to offset a short position (same as Short Covering); see Offset, Liquidation ; (2) to have in hand the physical commodity when a short futures sale is made, or to acquire the commodity that might be deliverable on a short sale.

Covered Option: A short call or put option position that is covered by the sale or purchase of the underlying futures contract or other underlying instrument. For example, in the case of options on futures contracts, a covered call is a short call position combined with a long futures position. A covered put is a short put position combined with a short futures position.

Cox-Ross-Rubinstein Option Pricing Model: An option pricing model developed by John Cox, Stephen Ross, and Mark Rubinstein that can be adopted to include effects not included in the Black-Scholes Model (e.g., early exercise and price supports).

CPO: See Commodity Pool Operator.

Crack Spread: In energy futures, the simultaneous purchase of crude oil futures and the sale of petroleum product futures to establish a refining margin. See Gross Processing Margin.

Credit Default Option: A put option that makes a payoff in the event the issuer of a specified reference asset defaults. Also called Default Option.

Credit Default Swap: A bilateral over-the-counter (OTC) contract in which the seller agrees to make a payment to the buyer in the event of a specified credit event in exchange for a fixed payment or series of fixed payments; the most common type of credit derivative; also called Credit Swap; similar to Credit Default Option.

Credit Derivative: An over-the-counter (OTC) derivative designed to assume or shift credit risk, that is, the risk of a credit event such as a default or bankruptcy of a borrower. For example, a lender might use a credit derivative to hedge the risk that a borrower might default or have its credit rating downgraded. Common credit derivatives include Credit Default Options, Credit Default Swaps, Credit Spread Options, Downgrade Options, and Total Return Swaps.

Credit Event: An event such as a debt default or bankruptcy that will affect the payoff on a credit derivative. ISDA has published a definition of a credit event.

Credit Rating: A rating determined by a rating agency that indicates the agency’s opinion of the likelihood that a borrower such as a corporation or sovereign nation will be able to repay its debt. The rating agencies include Standard & Poor’s, Fitch, and Moody’s.

Credit Spread: The difference between the yield on the debt securities of a particular corporate or sovereign borrower (or a class of borrowers with a specified credit rating) and the yield of similar maturity Treasury debt securities.

Credit Spread Option: An option whose payoff is based on the credit spread between the debt of a particular borrower and similar maturity Treasury debt.

Credit Swap: See Credit Default Swap.

Crop Year: The time period from one harvest to the next, varying according to the commodity (e.g., July 1 to June 30 for wheat; September 1 to August 31 for soybeans).

Cross-Hedge: Hedging a cash market position in a futures or option contract for a different but price-related commodity.

Cross-Margining: A procedure for margining related securities, options, and futures contracts jointly when different clearing organizations clear each side of the position.

Cross Rate: In foreign exchange, the price of one currency in terms of another currency in the market of a third country. For example, the exchange rate between Japanese yen and Euros would be considered a cross rate in the US market.

Cross Trading: Offsetting or noncompetitive match of the buy order of one customer against the sell order of another, a practice that is permissible only when executed in accordance with the Commodity Exchange Act, CFTC regulations, and rules of the exchange.

Crush Spread: In the soybean futures market, the simultaneous purchase of soybean futures and the sale of soybean meal and soybean oil futures to establish a processing margin. See Gross Processing Margin.

CTA: See Commodity Trading Advisor.

CTI (Customer Type Indicator) Codes:These consist of four identifiers that describe transactions by the type of customer for which a trade is effected. The four codes are: (1) trading for the person who holds trading privileges for the person’s own account or an account for which the person has discretion; (2) trading for a proprietary account of the clearing member's firm; (3) trading for another person who holds trading privileges who is currently present on the trading floor or for an account controlled by such other person; and (4) trading for any other type of customer. Transaction data classified by the above codes are included in the trade register report produced by a clearing organization.

Curb Trading: Trading by telephone or by other means that takes place after the official market has closed and that originally took place in the street on the curb outside the market. Under the Commodity Exchange Act and CFTC rules, curb trading is illegal. Also known as kerb trading.

Currency Swap: A swap that involves the exchange of one currency (e.g., US dollars) for another (e.g., Japanese yen) on a specified schedule.

Current Delivery Month: See Spot Month.

Daily Price Limit: The maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange.

Day Ahead: See Next Day.

Day Order: An order that expires automatically at the end of each day's trading session. There may be a day order with time contingency. For example, an "off at a specific time" order is an order that remains in force until the specified time during the session is reached. At such time, the order is automatically canceled.

Day Trader: A trader, often a person with exchange trading privileges, who takes positions and then offsets them during the same trading session prior to the close of trading.

Deck: The orders for purchase or sale of futures and option contracts held by a floor broker.

Declaration Date: See Expiration Date.

Declaration (of Options): See Exercise.

Default: Failure to perform on a futures contract as required by exchange rules, such as failure to meet a margin call, or to make or take delivery.

Default Option: See Credit Default Option.

Deferred Futures: See Back Months.

Deliverable Grades: See Contract Grades.

Deliverable Stocks: Stocks of commodities located in exchange-approved storage, for which receipts may be used in making delivery on futures contracts. In the cotton trade, the term refers to cotton certified for delivery. Also see Certificated or Certified Stocks.

Deliverable Supply: The total supply of a commodity that meets the delivery specifications of a futures contract. See Economically Deliverable Supply.

Delivery: The tender and receipt of the actual commodity, the cash value of the commodity, or of a delivery instrument covering the commodity (e.g., warehouse receipts or shipping certificates), used to settle a futures contract. See Notice of Delivery, Delivery Notice.

Delivery, Current: Deliveries being made during a present month. Sometimes current delivery is used as a synonym for nearby delivery.

Delivery Date: The date on which the commodity or instrument of delivery must be delivered to fulfill the terms of a contract.

Delivery Instrument: A document used to effect delivery on a futures contract, such as a warehouse receipt or shipping certificate.

Delivery Month: The specified month within which a futures contract matures and can be settled by delivery or the specified month in which the delivery period begins.

Delivery, Nearby: The nearest traded month, the front month. In plural form, one of the nearer trading months.

Delivery Notice: The written notice given by the seller of his intention to make delivery against an open short futures position on a particular date. This notice, delivered through the clearing organization, is separate and distinct from the warehouse receipt or other instrument that will be used to transfer title. Also called Notice of Intent to Deliver or Notice of Delivery.

Delivery Option: A provision of a futures contract that provides the short with flexibility in regard to timing, location, quantity, or quality in the delivery process.

Delivery Point: A location designated by a commodity exchange where stocks of a commodity represented by a futures contract may be delivered in fulfillment of the contract. Also called Location.

Delivery Price: The price fixed by the clearing organization at which deliveries on futures are invoiced—generally the price at which the futures contract is settled when deliveries are made. Also called Invoice Price.

Delta: The expected change in an option's price given a one-unit change in the price of the underlying futures contract or physical commodity. For example, an option with a delta of 0.5 would change $.50 when the underlying commodity moves $1.00.

Delta Margining or Delta-Based Margining: An option margining system used by some exchanges that equates the changes in option premiums with the changes in the price of the underlying futures contract to determine risk factors upon which to base the margin requirements.

Delta Neutral: Refers to a position involving options that is designed to have an overall delta of zero.

Deposit: The initial outlay required by a broker of a client to open a futures position, returnable upon liquidation of that position.

Depository Receipt: See Vault Receipt.

Derivative: A financial instrument, traded on or off an exchange, the price of which is directly dependent upon (i.e., "derived from") the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement (e.g., the movement over time of the Consumer Price Index or freight rates). Derivatives involve the trading of rights or obligations based on the underlying product, but do not directly transfer property. They are used to hedge risk or to exchange a floating rate of return for fixed rate of return. Derivatives include futures, options, and swaps. For example, futures contracts are derivatives of the physical contract and options on futures are derivatives of futures contracts.

Derivatives Clearing Organization: A clearing organization or similar entity that, in respect to a contract (1) enables each party to the contract to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties; (2) arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such contracts; or (3) otherwise provides clearing services or arrangements that mutualize or transfer among participants in the derivatives clearing organization the credit risk arising from such contracts.

Derivatives Transaction Execution Facility (DTEF): A board of trade that is registered with the CFTC as a DTEF. A DTEF is subject to fewer regulatory requirements than a Contract Market. To qualify as a DTEF, an exchange can only trade certain commodities (including excluded commodities and other commodities with very high levels of deliverable supply) and generally must exclude retail participants (retail participants may trade on DTEFs through Futures Commission Merchants with adjusted net capital of at least $20 million or registered Commodity Trading Advisors that direct trading for accounts containing total assets of at least $25 million). See Derivatives Transaction Execution Facilities.

Designated Contract Market: See Contract Market.

Designated Self-Regulatory Organization (DSRO): Self-regulatory organizations (i.e., the commodity exchanges and registered futures associations) must enforce minimum financial and reporting requirements for their members, among other responsibilities outlined in the CFTC's regulations. When a Futures Commission Merchant (FCM) is a member of more than one SRO, the SROs may decide among themselves which of them will assume primary responsibility for these regulatory duties and, upon approval of the plan by the Commission, be appointed the "designated self-regulatory organization" for that FCM.

Diagonal Spread: A spread between two call options or two put options with different strike prices and different expiration dates. See Horizontal Spread, Vertical Spread.

Differentials: The discount (premium) allowed for grades or locations of a commodity lower (higher) than the par of basis grade or location specified in the futures contact. See Allowances.

Directional Trading: Trading strategies designed to speculate on the direction of the underlying market, especially in contrast to volatility trading.

Discount: (1) The amount a price would be reduced to purchase a commodity of lesser grade; ( 2) sometimes used to refer to the price differences between futures of different delivery months, as in the phrase "July at a discount to May," indicating that the price for the July futures is lower than that of May.

Discretionary Account: An arrangement by which the holder of an account gives written power of attorney to someone else, often a Commodity Trading Advisor, to buy and sell without prior approval of the holder; often referred to as a "managed account" or controlled account.

Distant or Deferred Months: See Back Month.

Dominant Future: That future having the largest amount of open interest.

Double Hedging: As used by the CFTC, it implies a situation where a trader holds a long position in the futures market in excess of the speculative position limit as an offset to a fixed price sale, even though the trader has an ample supply of the commodity on hand to fill all sales commitments.

DSRO: See Designated Self-Regulatory Organization.

DTEF: See Derivatives Transaction Execution Facility.

Dual Trading: Dual trading occurs when: (1) a floor broker executes customer orders and, on the same day, trades for his own account or an account in which he has an interest; or (2) a FCM ca