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Futures Terms |
| Browse our glossary of terms by using the Alphabet below. You may also search the glossary by using the search box in the right column. | |
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| Term | Definition |
|---|---|
| Greek Derivative Statistics | The rates at which option prices change as a function of option model inputs. These statistics include “delta” (the rate of change of the option’s premium for changes in the price of the underlying asset), "gamma" (the rate of change of the delta for changes in the price of the underlying asset), "theta" (the rate of change in the option’s premium over the passage of time), "vega" (the rate of change of the option’s premium for a change in the rate of the implied volatility), "rho" (the rate of change of the option’s premium for a change in interest rates), and other. |
| Hedge Fund | An investment fund open to accredited investors which can invest in a larger variety of instruments and adopt a wider range of trading strategies than can a conventional mutual fund. |
| Hedging | A position designed to offset, in all or part, the price movement of another position. For example, an investor could hedge a long position in stock XYZ by assuming a short position in the Single Stock Future of stock XYZ. |
| Index | A composite of securities whose price is measured relative to a specified baseline. Index may be designed to track changes in the economy in general, in the stock market as a whole, or in a defined segment of the stock market, such as industrial stocks or technology stocks. |
| Indexation | The investment strategy of trying to replicate the price movement of an index, or of a designated basket of securities. |
| Inverted Curve | The state wherein futures contracts trade below the price of the stock. |
| Last Trading Day | The last and final day a futures contract can trade. The last trading day of an NQLX Single Stock Futures is the third Friday of the delivery month. |
| Liquidity | The capacity within a market to transact volume without affecting price or transaction cost. Measures of liquidity include the total open interest of a contract and the number of contracts available at the bid and offer. |
| Long | The buyer of a futures contract is said to be "long" the contract. In such a case, the welfare of the position increases as its price rises and decreases as its price falls. |
| Lot | One futures contract (e.g. a contract representing 100 shares in Microsoft Corporation. |
| Maintenance Margin | The minimum level of equity in a trader’s account that must exist in order to carry a given futures position. |
| Margin | In stocks, the amount required as down payment. For futures, the amount required as a good faith performance bond. |
| Matched Pair | A trade in which two closely related stocks are traded against each other, one purchased and one sold. |
| OCC Option Clearing Corporation | The firm that processes NQLX Single Stock Futures transactions for settlement and delivery. |
| Offset | Extinguish an obligation. The obligation created by entering into a Single Stock Future can be offset by entering in the opposite transaction. For example, the holder of a long position in a Single Stock Future can offset his obligation by selling a contract on the same underlying asset and the same delivery month. |
| Open Interest | Open interest refers to the number of outstanding contracts that remain open. For example, if a position was taken in a contract, and at the expiry of that contract, instead of closing out the position, the trader decided to roll the contract over (ie open a similar position in the next expiry month), their open interest in that contract would continue. If however the trader decided to close out their position, the open interest for that contract would decrease. |
| Option | The buyer of an option has the right, but not the obligation, to undertake an action on an underlying asset. The right to buy is a "call" option, while the right to sell is a "put" option. A right exercisable only on the expiration date is "European"-style, while a right exercisable on or before the expiration date is "American"-style. The pre-determined price at which exercise occurs is the strike price. |
| Performance Bond | A deposit made by a futures trader protecting the clearinghouse from the risk of default. |
| Physical Delivery | The tender or receipt of the contract's underlying commodity to fulfill the delivery requirements of the futures contract. A Single Stock Futures contract's underlying commodity is normally 100 shares (plus or minus the impact of corporate events) of the common stock or American Depository Receipts (ADRs). |
| Premium | The amount paid for an option.
The premium of an option is generally composed of two parts:
1. The “intrinsic” value (the smaller of either:
|
| Principle of indifference | The state of two financial positions being of equivalent worth or economic utility to a trader. The principle of indifference is the basis for arbitrage pricing. |
| Purchase Price | The total actual cost paid or to be paid, directly or indirectly, by a person to acquire a commodity option. This price includes all commissions and other fees, in addition to the option premium. |
| Purchaser | An individual who buys an option. Such a person is said to have a long position. |
| Put Option | The buyer of a put option has the right, but not the obligation, to sell an underlying asset at a specified "strike" price on (in the case of a "European"-style exercise) or by (in the case of an "American"-style exercise) a specified expiration date. The buyer pays the seller a "premium," and may profit if the price of the underlying asset is at a level below the strike price plus the premium paid, by the put’s expiration date. The seller of a put option receives and keeps the premium, but may have to sell the stock if the buyer "exercises" the option.
Both buyers and sellers of options can offset their positions. |
| Rights Offering | A grant by the issuing company to existing shareholders of the right to buy additional shares, in quantities proportional to current ownership, before they are offered to the general public. |
| Rollover | The transfer of a futures position from one delivery / expiry month to another - involving the purchase (sale) of the nearby month and the simultaneous and corresponding sale (purchase) of a further delivery or expiry month. |
| Round-trip | The opening purchase (sale) of a futures contract and the subsequent opposite and closing transaction in the same contract. Transaction costs are often quoted on a round-trip basis. |
| SEC - Securities and Exchange Commission | The executive agency of the U.S. federal government responsible for regulating securities markets and the issues trading thereon, and for enforcing the rules of fair practice and disclosure. |
| Securities | Financial claims against the assets or future cash flows of the issuing entity. Stocks and bonds are securities. |
| Segregation | Futures commission merchants (FCMs) maintain customers' segregated funds to ensure any and all customers' accounts are not under-margined at any time. The Commodities Future Trading Commission's (CFTC) regulations require an FCM to segregate and separately account for customers' commodity funds. |