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Series 3 Exam > Glossary of Exam Terms (Wiley) > Flashcards

Glossary of Exam Terms (Wiley) Flashcards

Learn all vocabulary as published by Wiley 2015 Series 3 Exam Review + Test Bank

1
Q

Commodity Exchange Act

A

Passed by Congress in 1936, this piece of legislation replaced the Grain Futures Act of 1922 and required that any transaction in commodity futures or commodity futures options take pace on the floor of an exchange and not in the over-the-counter or OTC market. Amended in 1975 to create the Commodity Futures Trading Commission, to oversee and regulate the industry.

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2
Q

Actual Funds

A

The equity in each commodity trading account over which a CTA has full discretionary authority and may enter trades and withdraw funds without the client’s consent.

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3
Q

Actuals

A

The underlying physical cash commodity.

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4
Q

Appeals Committee

A

An entity established under NFA Bylaws, to whom a respondent may contest the findings of the business conduct committee.

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5
Q

Approved Delivery Facility

A

An exchange-approved warehouse or storage facility authorized to accept delivery of underlying commodities for the settlement of futures contracts.

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6
Q

Arbitrage

A

An investment strategy used to profit from market inefficiencies between two contracts or between the price of the futures contract and the price of the underlying commodity.

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7
Q

Associated Person

A

Any individual under the control of an FCM or IB, including officers, and directors, as well as those individuals who act in any sales capacity or who supervise such.

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8
Q

Backwardation

A

A pricing structure where distant futures contracts are trading at progressively lower prices to near-term contracts. Also known as an inverted market.

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9
Q

Basis

A

The term used to describe the price spread between the price of the underlying cash commodity and the futures contract.

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10
Q

Basis Grade

A

A minimum standard for the quality of a commodity that may be delivered under the settlement of a futures contract.

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11
Q

Basis Point

A

Measures a bond’s yield; one of these is equal to 1/100 of 1%.

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12
Q

Bear Market

A

A market condition that is characterized by continuously falling prices and a series of lower lows in overall prices.

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13
Q

Bearish

A

An investor’s belief that prices will decline.

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14
Q

Bid

A

A price that an investor or merchant is willing to pay for a futures contract. It is also a price at which an investor may sell a contract immediately and the price at which market maker will buy a security.

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15
Q

Board Order

A

(see Market If Touched order)

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16
Q

Board of Trade

A

An exchange duly recognized by the CFTC and authorized to trade futures contracts.

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17
Q

Breakout

A

A technical term used to describe the price action of a security when it increases past resistance to a higher level and into a new trading range.

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18
Q

Broker

A

An individual or firm that acts as the customer’s agent and executes futures orders for a commission.

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19
Q

Bull Market

A

A market condition that is characterized by rising prices and a series of higher highs.

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20
Q

Bullish

A

An investor who believes that the price of a security or prices as a whole will rise.

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21
Q

Business Conduct Committee

A

An entity established under the NFA Bylaws, that issues complaints against members for rule violations.

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22
Q

Call Option

A

A type of option that gives the holder the right to purchase a specified number of futures contracts at a stated price for a specified period of time.

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23
Q

Carrying Firm

A

An FCM who clears customer trades and has custody of or carries customer assets.

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24
Q

Carrying Charge

A

The cost to store, insure, and finance the physical possession of the underlying commodity.

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25
Q

Carrying Charge Market

A

A pricing structure where distant month contracts trade at a premium to near-term contracts, representing the cost to store, insure, and finance the physical possession of the underlying commodity.

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26
Q

Carryover

A

The amount of a commodity that remains available from the previous harvest year.

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27
Q

Cash Commodity

A

The actual physical commodity. See actuals.

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28
Q

Cash Market

A

The market where the actual commodity is sold and delivered upon receipt of cash payment.

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29
Q

Certified Stock

A

The amount of the cash commodity on hand and in warehouses and approved for settlement of futures contracts. Also known as deliverable stock.

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30
Q

Churning

A

Executing transactions that are excessive in their frequency or size in light of the resources of the account for the purpose of generating commissions.

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31
Q

Clearing

A

The process by which the clearinghouse guarantees the performance of each futures contract for each buyer and seller.

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32
Q

Clearinghouse

A

An agency that guarantees and settles futures and option transactions for an exchange.

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33
Q

Clearing Member

A

A member of both the exchange and of the clearinghouse who may carry customer funds and clear trades.

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34
Q

Closing Order

A

(See “Closing Range.”)

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35
Q

Closing Transaction

A

An order to offset an existing long or short futures or option contract position.

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36
Q

Commission or CFTC

A

Created by Congress to oversee the trading in all futures contracts. The entity is a direct government agency and is the ultimate regulator in the commodity futures industry. It is not a self-regulatory organization (SRO).

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37
Q

Commission House/Commission Merchant

A

A firm that represents customer orders for the purchase and sale of commodity futures contracts and options on commodity futures contracts. The firm charges a fee known as a commission for executing the customers’ orders.

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38
Q

Commodity Futures Contract

A

An exchange-approved contract representing the obligation to accept or make delivery of a set amount of the underlying commodity.

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39
Q

Commodity Futures Option

A

A contract that creates the right to purchase or sell a futures contract in the case of the buyer of the option, or the obligation to purchase or sell the futures contract in the case of the seller.

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40
Q

Commodity Pool

A

A business entity established to trade commodities in a single account established from the combined contributions of numbers participants.

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41
Q

Commodity Pool Operator

A

A Commodity Pool Operator or CPO is an organization which invests money contributed by a group of participants to a single account for the purpose of investing the money in futures contracts, options on futures, retail off-exchange forex contracts or swaps, or to invest in another commodity pool.

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42
Q

Commodity Trading Advisor (CTA)

A

An individual or business who, for compensation or profit, advises others on trading futures contracts or options on futures contracts. This is also someone who advises as to the value of futures contracts, options on futures, retail off-exchange forex contracts, or swaps.

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43
Q

Congestion

A

A sideways trading pattern characterized by small price changes with support and resistance being in very close proximity to each other.

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44
Q

Contango

A

A futures contract pricing structure where the further delivery months trade at successively higher premiums. This market structure is also known as a premium market, a normal market, or a carrying charge market.

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45
Q

Contract

A

A standardized agreement to accept or to make delivery of a commodity in the case of a futures contract or of a futures contract in the case of a commodity futures option.

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46
Q

Contract Grades

A

The various grades of the commodity that may be delivered to settle a futures contract. These include basis grade (standard), premium, and discount grade.

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47
Q

Contract Market

A

An exchange officially designated by the CFTC where commodities futures and commodity futures options trading may take place.

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48
Q

Contract Month

A

The month during which the underlying commodity must be delivered by the seller and during which delivery must be accepted by the buyer.

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49
Q

Contract Unit

A

The standardized number of units of the underlying commodity covered by the futures contract.

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50
Q

Controlled Account

A

An account where discretionary authority to purchase and sell commodity futures contracts has been given to a third party.

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51
Q

Corner

A

The accumulation or control of a substantial amount of the supply of the commodity, to the point where the parties controlling the substantial supply can dictate the price for the commodity or manipulate the price of the commodity in the marketplace.

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52
Q

Cover

A

The act of offsetting a short futures position by purchasing the contract to close and exit the market.

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53
Q

Covered Call

A

The sale of a call option against a long futures contract position.

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54
Q

Credit Spread

A

An option position that results in a net premium or credit received by the investor from the simultaneous purchase and sale of two calls or two puts on the same futures contract.

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55
Q

Crop Year

A

The period for agricultural commodities which begins with the current harvest and runs util the next harvest of the following year.

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56
Q

Daily Price Limit

A

The maximum amount by which the price of a given commodity may rise or fall during a given trading day.

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57
Q

Day Order

A

An order that will be cancelled at the end of the trading day on which it is entered, if not executed.

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58
Q

Day Trader

A

An investor who seeks to profit from the intraday price changes of futures contracts and who does not hold these positions overnight.

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59
Q

Debit Spread

A

An option position that results in a net premium, paid by the investor from the simultaneous purchase and sale of two calls or two puts on the same security.

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60
Q

Deferred futures

A

Futures contracts with expiration dates exceeding the current or front month contract.

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61
Q

Delivery

A

The presentation of the underlying commodity to settle the obligations of a futures contract.

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62
Q

Delivery Notice

A

A written notice submitted to a long futures contract holder informing them of their requirement to accept delivery of the physical commodity on a specified date from the short futures contract holder.

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63
Q

Delta

A

A measure of an option’s price change in relation to a price change in the underlying security.

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64
Q

Depository Receipt

A

A receipt issued as evidence of the ownership of the underlying cash commodity.

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65
Q

Discount

A

A lower contract settlement price paid by the buyer to accept delivery of an inferior or discount grade commodity to settle a futures contract.

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66
Q

Discount Market

A

A futures contract pricing structure where the near-term contract is trading at a higher price than the more distant contracts. This is also known as an inverted market or backwardation.

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67
Q

Discretionary Account

A

(See controlled account).

68
Q

Equity

A

The total cash value of an account including margin deposits plus or minus any realized or unrealized profit or loss on futures contracts.

69
Q

Euro

A

The single European currency used by numerous countries as legal tender.

70
Q

Exercise Price

A

The price at which an option investor may purchase or sell a futures contract.

71
Q

Expiration

A

The date on which an option ceases to exist and all rights and obligations are eliminated.

72
Q

Ex-pit transaction

A

A trade that is executed outside of the futures trading pit. An exchange for physical order would be an example of an ex-pit transaction where the actual commodity is exchanged for a futures contract position, not as settlement of the contract.

73
Q

Fill or Kill Order

A

A type of order that requires that all the contracts in the order be purchased or sold immediately or not at all.

74
Q

Financial Futures

A

Contracts based on Treasury securities, interest rates, and stock market indexes.

75
Q

Floor Broker

A

An individual member of an exchange who may execute orders on the floor.

76
Q

Floor Traders

A

Members of the exchange who trade for their own accounts. Also known as locals.

77
Q

Foreign Board of Trade

A

A futures exchange or market located outside of the United States, its territories, or possessions.

78
Q

Foreign Currency Futures

A

Contracts based on a specified number of units of another country’s currency.

79
Q

Forwards

A

A two-party contract for the purchase and sale of a commodity delivered at a future date.

80
Q

Futures

A

A two-party contract. The specific terms and conditions of the contracts are standardized and set by the exchange on which the futures contracts trade. The contract account, delivery date, and type of settlement vary between the different types of futures contracts.

81
Q

Futures Commission Merchant (FCM)

A

A person who is required to register or is registered under the Act and Commission Rules.

82
Q

Ginnie Mae

A

A government corporation that provides liquidity to the mortgage markets by purchasing pools of mortgages that have been insured by the Federal Housing Administration and the Veterans Administration. This entity issues pass=-through certificates to investors, backed by the pools of mortgages.

83
Q

Give Up Order

A

A customer order that is given out by a merchant to be executed by another firm to protect the customer’s identity.

84
Q

Gross Processing Margin

A

The calculation that determines the profit that can be made by processing the raw commodity into refined products.

85
Q

Head and Shoulders

A

A chart pattern that indicates a reversal of a trend. A “top” indicates a reversal of an uptrend and is considered bearish. A “bottom” is the reversal of a downtrend and is considered bullish.

86
Q

Hedge

A

A position taken in a security to offset or reduce the risk associated with the risk of a price change in the commodity or in another security.

87
Q

Initial Margin

A

The amount of the good faith deposit that must be deposited in an account when a futures position is established. Also known as original margin.

88
Q

In The Money

A

A relationship between the strike price of an option and the underlying security’s price. For calls: when the strike price is lower than the market price; for puts: when the strike price is higher than the market price.

89
Q

Intrinsic Value

A

The amount by which an option is in the money.

90
Q

Introducing Broker or IB

A

An individual or organization that solicits or accepts customer orders for futures and options on futures. This person or business may not accept checks made out in its name.

91
Q

Inverted Market

A

Another term for the condition known as backwardation.

92
Q

Large Positions Report

A

A report required to be filed in order to prevent large investors from manipulating the price of commodities futures or the value of the underlying cash commodity. The exchanges have set both reporting and maximum limits for the size of a position established on the same side of the market.

93
Q

Last Notice Day

A

The last day during the delivery period on which a seller of a futures contract may tender notice of intention to deliver the underlying commodity. Also known as the final notice day.

94
Q

Last Trading Day

A

The final day when contract for a particular delivery month trades.

95
Q

Leverage Transaction Merchant

A

A person who is required to register or is registered under the Act and Commission Rules.

96
Q

Limit Order (Note: How long does this last - for the day?)

A

An order that sets a maximum price that the investor will pay in the case of a buy order or the minimum price the investor will accept in the case of a sell order.

97
Q

Limit Up/Limit Down

A

The maximum amount by which a contract may rise or fall during a particular trading day based on the previous day’s settlement price.

98
Q

Liquidation

A

The execution of an offsetting sell order to eliminate a long futures contract position.

99
Q

Liquidity

A

The ease and speed with which a position may be established or eliminate in a market.

100
Q

Local

A

Another term for “Floor Trader.”

101
Q

Long

A

A term used to describe an investor who owns a futures contract.

102
Q

Long the Basis

A

A termused to describe someone who owns the underlying cash commodity.

103
Q

Maintenance Call

A

A demand for additional cash or collateral made by a merchant when a margin customer’s account equity has fallen below the minimum requirement.

104
Q

Maintenance Margin

A

The minimum amount of equity that must be maintained in an account to hold an open futures contract position.

105
Q

Margin

A

The amount of customer equity that is required to hold a position in a futures contract. Sometimes used to describe the amount of equity a customer has in their account.

106
Q

Margin Call

A

A demand for additional cash sent by the firm when the equity in a customer’s account has fallen below the minimum required equity.

107
Q

Market if Touched Order (MIT)

A

An order where the investor wants the order to be executed if the market trades (or is bid or offered) at or through a set price. Unlike a limit order, the this order becomes a market order to purchase or sell the contracts at the next available price.

108
Q

Market on Open/Market on Close

A

The investor wants their order executed on the opening of the market or as reasonably close to the opening as practical. The exchange sets an opening time range that is considered to be the open of the trading day.

109
Q

Market Order

A

An order will guarantee that the investor’s order is executed as soon as the order is presented to the market. This order to either buy or sell guarantees the execution, but not the price at which the order will be executed.

110
Q

NFA Member

A

An individual or firm who is registered with the self-regulatory organization of the futures trading industry.

111
Q

Minimum Price Variation

A

The minimum amount by which the price of a commodity may change from the previous trade. Also known as a tick.

112
Q

NFA

A

The self-regulatory organization, or SRO, for the futures industry. Its main areas of focus are:
To ensure ethical behavior
To ensure individuals meet minimum training and knowledge standards
To ensure firms meet minimum financial standards
To conduct unannounced spot audits of members

113
Q

Nominal Account Size

A

The account size the client agrees to establish to determine the level of trading in the particular trading program.

114
Q

Notice Day

A

A shortened version of the term “first notice day.”

115
Q

Notice of Delivery

A

The notice tendered by a clearinghouse, used to inform the broker representing a long contract holder that the short contract holder intends to make physical delivery of the commodity.

116
Q

Offer

A

A price published at which an investor or merchant is willing to sell a futures contract.

117
Q

Offset

A

The closing out of an open futures position.

118
Q

Omnibus Account

A

An account used by an introducing member to execute and clear all of its customer’s trades.

119
Q

Open Interest

A

The number of outstanding futures contracts that have not been offset or closed by investors. The greater this level, the greater the liquidity.

120
Q

Open Order

A

An order that is in the hands of the merchant to be executed when the market reaches there terms specified by the order.

121
Q

Open Trade Equity (OTE)

A

The total cash value of a futures position based on the initial margin deposit plus or minus any unrealized gains or losses.

122
Q

Opening Range

A

The exchange sets an opening time range that is considered to be the open of the trading day. All orders executed during this time will be considered to have been executed on the open.

123
Q

Option

A

In the commodity futures market, this is a contract between two parties that determines the time and price at which a futures contract may be bought or sold.

124
Q

Original Margin

A

Another term for initial margin.

125
Q

Out of the Money

A

The relationship of an option’s strike price to the underlying security’s price when exercising the option would not make economic sense. For a Call: when the security’s price is below the option’s strike price; and for a Put: when the security’s price is above the option’s strike price.

126
Q

Overbought

A

A technical condition where the price of the commodity has risen to unsustainable levels and has exhausted all potential buyers.

127
Q

Oversold

A

A technical condition where the price of the commodity has fallen to unsustainable levels and has exhausted all potential sellers.

128
Q

Person

A

Any individual or entity that may enter into a legally binding contract and includes individuals, corporations, limited liability companies, partnerships, trusts, associations, and other entities.

129
Q

Pit

A

The area designated on the floor of a commodities exchange where all transactions in a particular commodity must take place.

130
Q

Position Limit

A

The maximum number of contracts that a persona may hold on the same side of the market. Limits are established to prevent large investors from manipulating the price of commodities.

131
Q

Premium

A

The increased price paid for the delivery of a superior grade of a commodity.

132
Q

Premium Market

A

Another term for Carrying Charge Market

133
Q

Put

A

An option that gives the buyer the right to sell the futures contract at a specific price for a certain period of time. The sale of this option obligates the seller to buy the futures contract from the buyer at that specific price for a certain period of time.

134
Q

Pyramiding

A

A trading strategy using the unrealized profits on a position to increase the size of the profitable position.

135
Q

Range

A

The difference between the high and low prices of a commodity during any given trading period.

136
Q

Reporting Level (Position Reporting Level)

A

The number of contracts established on the same side of the market that triggers the requirement for the holder to file daily position reports. The reporting level is lower than the maximum position limit.

137
Q

Requirements

A

As established by the NFA, CFTC, or any exchange are any duty, restriction, procedure, or standard imposed by a charter, rule, bylaw or regulation.

138
Q

Resistance

A

A price level to which a futures contract appreciates and attracts sellers. The new sellers keep the security’s price from rising any higher.

139
Q

Resting Order

A

An Open Order and a Limit Order can both be described as this type of order.

140
Q

Round Turn

A

The establishment and subsequent offset of a futures contract position. Most FCMs charge commissions based on round turns.

141
Q

Scale Order

A

This order is entered when an investor wishes to establish or offset a position by purchasing or selling futures contracts at specified intervals. This will allow an investor to establish or liquidate a position at an average price instead of just executing the full order at a prevailing price.

142
Q

Scalper

A

A trader who seeks to earn quick profits from small changes in the price of a futures contract. Scalpers are usually floor traders, also known as locals.

143
Q

Settlement Price

A

The official closing price of a futures contract established by the exchange and used to determine the unrealized profit and loss on an open contract position and to determine the change in price in the futures contract for the next session.

144
Q

Short

A

A position established by a bearish investor in the hopes that the price of the futures contract will fall.

145
Q

Short Hedge

A

The sale of a futures contract to protect a long position in the cash commodity from a decline in price.

146
Q

Short the Basis

A

A term used to describe someone who needs, but who has not yet obtained, the physical cash commodity to effect delivery or to operate a business.

147
Q

Speculator

A

The objective of this market participant is to make a profit based on their belief about the future price action of a commodity.

148
Q

Spot Market

A

The cash market for a commodity where the physical exchange of the commodity and payments are made for immediate delivery.

149
Q

Spot Price

A

The current price at which the physical commodity may be bought and sold in the cash market.

150
Q

Spread

A

The difference between the bid and ask for a futures contract; or: the simultaneous purchase and sale of two calls or two puts on the same underlying futures contract.

151
Q

Stop Order

A

An order that becomes a market order to buy or sell the stock when the futures contract trades at or through the stop price.

152
Q

Stop Loss Order

A

An order that becomes a limit order to buy or sell the stock when the futures contract trades at or through the stop price.

153
Q

Straddle

A

The simultaneous purchase or sale of a call and a put on the same security with the same strike price and expiration.

154
Q

Strike Price

A

Another term for “exercise price.”

155
Q

Support

A

The price to which a futures contract will fall and attract new buyers. New buyers entering the market keep the price from falling any lower.

156
Q

Switch Order

A

An order entered by a customer who wishes to roll out the delivery month to continue holding a position in the underlying commodity but who does not want to take or make delivery.

157
Q

Technical Analysis

A

A method of analysis that uses past price performance to predict the future performance of a commodity.

158
Q

Tender

A

Submission of a notice of intention to make delivery.

159
Q

Tick

A

Another, informal term for “minimum price variation.”

160
Q

Time Value

A

The value of an option that exceeds its intrinsic value or its in the money amount.

161
Q

Uncovered Call/Put

A

The sale of a call option without owning the underlying futures or the sale of a put option without being short the futures. Uncovered positions are also known as naked positions.

162
Q

Underlying Commodity

A

The commodity on which the futures contract is based and in which the contract may be settled.

163
Q

Variation Margin

A

The amount of money required to be deposited to return the equity in a futures account to the initial margin requirement.

164
Q

Visible Supply

A

The amount of a commodity that is known to exist and to be readily available for delivery.

165
Q

Warehouse

A

A certified facility where stock of commodities may be stored and where delivery may be accepted.

Series 3 Exam (11 decks)

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