Futures Glossary

The demand for payment of a sum of money made upon a client.

An option to take a bought futures position at a predetermined price. 

The actual underlying physical asset as distinguished from futures contracts. Sometimes called "spot commodity".

Market for immediate delivery of and payment for commodities.

The price in the market place for actual cash or spot commodities to be delivered via customary market channels.

A procedure for settlement of contracts by automatic close-out at a cash price designated by an exchange in futures and options markets which make no provision for delivery, eg. SFE SPI 200™ Index Futures Contract.

The process of matching, registering and guaranteeing transactions.

A body which guarantees the fulfilment between Clearing Participants of all contracts traded on the Exchange. The Clearing House holds all deposit and margin requirements of the Clearing Participants who have to cover their commitments with the Clearing House on a day to day basis. The Clearing House handles all cash settlement within the market and provides the documentation necessary to record all business.

A participant of the Clearing House to whom fulfilment of all contracts, registered in their own name, is guaranteed.

To liquidate a position by taking an equal and opposite position, eg, a trader who has bought a futures contract, would close out, or get out of the contract, by taking out a contract to sell.

The fee made by a broker for buying or selling in the futures or cash markets.

The confirmation that the bought or sold side of a Futures Contract or Options Contract has been:

(a) entered, acquired or disposed of by a Participant; or

(b) accepted by Allocation from a Participant.

Market situation in which prices are progressively higher in the future delivery months than in the nearest delivery month. For instance, if the Wool quotation stands at 450¢/kg. for March and at 480¢/kg. for July, then the Contango for five months (against March as a basis) is 30¢/kg. (Contango is the opposite of Backwardation).

A term of reference describing a unit of trading for a future or option. Also an actual bilateral agreement between buyer and seller.

The month in which delivery or cash settlement is to be made in accordance with a futures contract.

The amount of the underlying asset to which the contract refers.

The value or worth of a Contract at the time of making that Contract.

The cost of buying the physical asset or instrument, holding it and later delivering it against sold futures contracts. This is called cash and carry. In markets where there is no delivery, a simulated cash and carry is achieved by buying the physical, selling futures and later reversing both transactions.

The annual rate of interest that a bond guarantees to pay; based on the bond's face value.

To cancel a short position in any future by the purchase of an equal quantity of the same future. Also known as short covering.

The futures contract which matures and becomes deliverable during the present month; also called spot month.

The official daily quotation for each Contract available on a Market of the Exchange for each delivery or cash settlement month (and in the case of Option Contracts, for each series) as determined by the Exchange for the purpose of margining by the Clearing House.

Organisations that disseminate real-time market information.

Orders which automatically expire at the close of the day's trading if not filled during the day on which they are received.

Establishing and liquidating the same futures market position within one day.

Failure to perform on a futures contract as required by the rules of the Exchange on which the contract is listed such as failure to meet a margin call, or to make or take delivery.

These refer to the actual types or grades of the underlying asset which may be delivered under the rules of the Exchange on which the futures contract is listed in settlement of a futures contract.

The tender and receipt of the actual physical asset, or warehouse receipts covering such commodity, in settlement of a futures contract. Note that in some commodities no delivery provision exists as settlement is made in cash.

A specified month during which actual delivery of the physical asset may be made under the terms of a futures contract. Each futures contract must state the month of delivery. Current delivery means delivery during the current month. Note that in some commodities no delivery provision exists as settlement is made in cash.

The change in the value of the option premium relative to the change in the value of the underlying future, expressed as a coefficient.

(1) The amount a price would be reduced to purchase a physical 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 the discount to May", indicating that the price of the July future is lower than that of May; see Premium.

A trading account over which the client gives a broker authority to effect transactions in futures contracts or options without prior reference to or approval of that client.

An Exchange For Physical (EFP) is the undertaking of a physical transaction in conjunction with an offsetting futures transaction with the same counterparty, at a price negotiated between the counterparties. EFPs are not transacted at market and therefore do not have to be traded within the current market bid and offer and are thus omitted from the calculation of first, high, low and last prices.

In the context of futures exchanges, an exchange provides the ability for buyers and sellers to meet (usually either electronically or via open outcry) to determine the buying and selling price of futures and options contracts.

An option to take up a futures position. This type of option has standardised exercise prices set by the Exchange, enabling transfer of option positions to third parties.

The price at which the buyer of a call option can purchase a futures contract during the life of the option, or the price at which the buyer of a put option can sell a futures contract during the life of the option.

A specified month during which the futures or options contract expires and actual delivery of the underlying asset takes place, or settlement is made in cash.

A Futures/Options transaction (F/O) is the undertaking of a simultaneous futures and options transaction, with the same counterparty, which creates a delta neutral hedge position.

An over-the-counter agreement made forward in time.

A purchase or sale of an actual asset for deferred delivery, not made on an exchange traded market.

An agreement to buy or sell an asset at a date in the future at a price agreed today.

The price at which a Futures Contract is bought or sold.

Take a position (ie. buy or sell) in the futures market as a means of managing the risk of price fluctuation in the physical market.

Historic volatility is an annualised standard deviation of daily changes in the price of the underlying futures contract.

The Clearing House determines a minimum deposit (initial margin) on all contracts traded on the market. This margin must be paid by the client to the Clearing Participant.

The purchase (sale) of one contract month against the sale (purchase) of another contract month of the same futures contract.

The purchase (sale) of one futures contract against the sale (purchase) of a different futures contract

A European style option which is available for the day trading session in which they were listed and expire prior to the start of the next trading session.

A market in which prices for distant futures are below the prices of the nearer futures.

The final day under the rules of an exchange during which trading may take place in a particular delivery futures month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of physicals or by cash settlement.

An order given to a broker by a customer who has some restriction upon its execution, such as price or time.

The sale of a previously held long position, or the re-purchase of an earlier established short position. The former is also called long liquidation, while the latter is referred to as short covering.

A market where selling and buying can be accomplished with ease because of high volume and market depth.

A trader who has bought futures contracts or who owns actuals which are unhedged. "Net Long" refers to a trader whose total purchases exceed the total short sales in the trader's open futures contracts.

A unit of trading equivalent to one futures contract.

The average number of lots traded per deal (that is, volume divided by deals).

Process whereby cash settled futures contracts still open at expiry are closed out by mandatory cash settlement.

A communication to a client asking to cover an adverse price movement on a futures position.

A term used to specify execution of an order during the closing if possible.

A term used to specify execution of an order during the opening if possible.

An order to buy or sell futures contracts for immediate execution at best available price.

Smallest increment of price movement possible in trading a given futures contract.

The difference between the open contracts long and the open contracts short held in any one contract by an individual or group.

An approximation of the dollar value of traded volume. For SFE interest rate futures and options, it is calculated by: (contract face value) x (volume). For equity and agricultural futures and options, it is calculated by: (contract face value) x (volume) x (price).

Novation refers to the process undertaken by the clearing house whereby it substitutes itself between the buyer and the seller of a trade, acting as the ‘middleman’ to guarantee the obligations of each party.

A communication indicating a willingness to sell at a given price. Opposite to Bid.

The procedure by which the long or short position of an individual is liquidated or closed out by an opposite transaction.

The commencement of Open Trading in a particular Contract or such other time as is designated by the Exchange.

The total number of futures contracts entered into a particular delivery month or futures market which have not been liquidated by an offsetting futures transaction or by actual physical delivery. Also known as open interest.

A document sent once a month to a client showing each contract the client holds as an open position.

The price (or price range) recorded during the period when a futures contract commences trading.

The period of Trading in a particular Contract during which bids and offers may be freely made, accepted, matched, cancelled and amended.

The right, but not the obligation, to take up bought or sold futures position at a predetermined price (the exercise price), for which the buyer pays a premium, limiting potential loss in the market to the total amount of the premium.

The non-refundable cost to purchase an option

Options of the same class having the same exercise price and declaration date.

An Option over a Futures Contract which expires in the same Settlement Month as the Underlying Futures Contract, on or about the Final Trading Day, (the last day on which trading can occur) of the Underlying Futures contract.

A European style option which is available for the night trading session in which they were listed and expire prior to the start of the next trading session.

A physical asset or futures contract whose prices have been pushed up to a level that some believe is unrealistically high and cannot be sustained ie. when the speculative long interest has rapidly increased and the speculative short interest is sharply reduced.

A physical asset or futures contract whose prices have been pushed down to a level that some believe is unrealistically low and cannot be sustained ie. when the speculative long interest has been drastically diminished and the speculative short interest increases.

Underlying market on which the derivative (futures or options) is based. Derivatives can be based upon a broad range of assets, for example, shares, equity indices, interest rate, physical commodities, currencies, to name a few.

An interest in the market, either long or short, in the form of open contracts which have not been liquidated.

The excess of one futures contract price over that of another. Also the difference by which one spot physical commodity sells over another grade of the same or another spot physical commodity.

An option to take a sold futures position at a predetermined price.

March, June, September and December.

An upward movement of prices following a decline.

The difference between the highest and the lowest price at which a given futures contract has traded during a particular period of time, eg. opening period of the market, closing period of the market, day, week, month, life of contract, etc.

A decline in prices following an advance - the opposite of a rally.

Accepting a profit either by a liquidating sale or covering a short sale.

An upward movement of the price after decline.

Trading a position from the nearest delivery month to an equivalent position in a different delivery month. Roll occurs leading up to the expiry of the nearest delivery month.

A completed transaction involving both a purchase and a subsequent sale or a sale followed by a liquidated purchase.

To purchase on scale down means to buy at regular price intervals in a declining market. To sell on scale up means to sell at regular price intervals as the market advances.

Enter into a futures contract to sell a specified underlying asset at a future date.

In relation to a Futures Contract the seller of that contract, and in relation to an Option Contract, the grantor or writer of that contract, including a person offering to grant or write, as the case may be.

Selling futures contracts to protect against possible decreased prices of commodities.

A condition of the market in which there is a scarcity of goods available and hence sellers can obtain better conditions for sale or higher prices.

An Option over a Futures Contract which expires in a Settlement Month which is different from the Settlement Month of the Underlying Futures Contract.

The day in which cash settlement or delivery resulting from expired futures or options contracts is conducted.

The calendar month in which the last day that the contract can be traded falls.

The price of a contract on the Settlement Day.

The value or worth of a cash settled contract on the Settlement Day.

SFE Clearing is the largest clearing and settlements provider in Australia/New Zealand. It provides a clearing service for all futures and options contracts traded on the Sydney Futures Exchange.

(1) The sold side of an open futures contract.

(2) A trader whose net position in the futures market shows an excess of open sales over open purchases.

Agreeing to sell a futures contract not presently owned with the intention of buying at a later date.

A person entering into futures contracts for any purpose other than hedging. One who attempts on the basis of existing conditions to anticipate price changes and to trade accordingly in order to make capital gains.

Market for immediate delivery of the product and immediate payment. Also refers to the nearest delivery month on a futures contract.

The price quoted for the actual physical asset - same as Cash Price.

A spread trade is based on a price relationship between the two contract months or two different contracts and a belief that the "spread" or difference in price between the two contract months or different contracts will change sufficiently to make the trade profitable

Stop loss is a type of order given to a broker and it can be used for three purposes: (a) to minimise a loss on a long or short position, (b) to protect a profit on an existing long or short position, or (c) to initiate a new long or short position.

Broader term used to describe the simultaneous transaction in multiple contract months or contracts. Strategy trades can be undertaken in futures and options contracts and include spread trades, strip trades, straddles and call spreads.

See Exercise price.

Sydney Computerised Market is an automated dealing system used by the Sydney Futures Exchange.

Sometimes called DELIVERABLE GRADES. These refer to the actual grades which may be delivered under Exchange rules in settlement of a futures contract.

Minimum change in price, up or down.

To enter, acquire or dispose of Contracts on a futures market operated by an Exchange.

A document that must be sent to a client immediately after each trade, confirming all details of that trade.

The period from any commencement of Open Trading to the Close of Trading (disregarding any temporary interruptions to Trading).

In respect of a particular futures market a day on which that Market open for trading.

The period from the Open of Trading to the Close of Trading on the following Business Day, or such other period as may be designated by an Exchange.

The general direction, either upward or downward, in which prices are moving.

The asset, instrument, index, reference rate or any other thing, excluding a Futures contract, whose price movement determines the value of the Contract.

The difference between the value of a Futures Contract or Option Contract as shown in the contract, and the value of that contract at any given time.

The number of purchases and sales of futures contracts during a specified period.

The effective interest rate on a fixed interest security until its maturity. For a bond, the calculation assumes it will be held to maturity and the interest received will be re-invested.