Market Terminology


    This Glossary is intended to assist the public in understanding some of the specialized words and phrases used in the futures industry since many of these terms are not found in standard reference works. The CFTC Glossary is not inclusive, and if you cannot find the term you are looking for or have any other comments, please let us know. A PDF version of the glossary is also available.
    Definitions are not intended to state or suggest the views of the Commission concerning the legal significance or meaning of any word or term and no definition is intended to state or suggest the Commission’s views concerning any trading strategy or economic theory. 
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    Abandon: To elect not to exercise or offset a long option position.
    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 orFreddie Mac, designed to resemble a U.S. Treasury bond.
    Agency Note: A debt security issued by a government-sponsored enterprise such as Fannie Mae orFreddie Mac, designed to resemble a U.S. 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.
    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.
    Algorithmic TradingThe use of computer programs for entering trading orders with the computer algorithm initiating orders or placing bids and offers.
    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. SeeEuropean 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. The National Futures Association 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.
    Ask: The price level of an offer, as in bid-ask spread.
    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 beenexercised, 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, acommodity 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.
    Auction Rate Security: A debt security, typically issued by a municipality, in which the yield is reset on each payment date via a Dutch auction.
    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 or sequence of the trade, the order receipt and execution time, and, ultimately, and when applicable, the customers involved.
    Automatic Exercise: A provision in an option contract specifying that it will be exercised automatically on theexpiration date if it is in-the-money by a specified amount, absent instructions to the contrary.



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