Here is a quick glossary of futures and options terms that you can use as a quick reference for your trading. If you would like a downloadable version of this list, you can visit OptionTradingExamples.com. Enjoy!
Ask: The expression of a price at which to sell a contract
At-the-Market: An order to buy or sell a contract at the best available price upon reaching the trading venue (trading floor or electronic platform)
Basis Point: A measurement of a change in the yield of a debt security. One basis point equals 1/100 of one percent.
Bear: An expression for a person who expects prices to decline.
Bear Market: An expression for a market in decline over a period of time.
Bear Spread: A trade design with a simultaneous purchase and sale of related – but not identical contracts – with the intent to benefit from a decline in prices.
Break: Word to describe a rapid and sharp price decline.
Bull: A term to describe a person who expects prices to rise.
Bull Market: A term to describe a market in which prices are rising over a period of time.
Bull Spread: A trade design with a simultaneous purchase and sale of related – but not identical contracts – with the intent to benefit from a rise in prices.
Calendar Spread: The simultaneous purchase and sale of contracts within the same market, but with different delivery or expiration dates.
Cash Settlement: A way of settling a futures contract which involves an exchange of cash value rather than a tangible product. Often applied to financial instruments such as a stock index.
Cover: An action to offset a short position within a portfolio.
Daily Price Limit: The maximum price movement allowed above or below the previous session’s settlement price.
Day Order: An order which is good only for the trading session in which it was first placed and one which expires at the end of that session.
Day Trader: An individual who buys or sells a contract and offsets the position within the same trading session.
Electronic Trading Facility: A trading venue which operates solely via telecommunication or electronics rather than floor trading.
Equity: As it refers to trading, is the balance of a trading account.
Exchange: The central marketplace which has been designated as the location on which to trade contracts.
Financial Instruments: As it refers to futures trading, any market which has not been designated as a tangible or agricultural commodity.
Foreign Exchange: Trading in foreign currencies.
Forex: A term for a foreign exchange market.
Limit (Up or Down): The maximum price movement allowed above or below the previous session’s settlement price.
Negative Carry: A term to describe a state in which the cost of financing a financial instrument is above the current return.
Overbought: A term in technical analysis with which the analyst implies that the market price has risen too high and fast in relation to the fundamental factors.
Oversold: A term in technical analysis with which the analyst implies that the market price has dropped too steeply and with greater speed in relation to the fundamental factors.
Positive Carry: A description of a state in which the cost of financing a financial instrument is less than the current return.
Scalper: An individual on a trading floor who speculates and buys and sells rapidly with small profits or losses within short time frames.
Short: The act of selling a futures contract or a net sale position within an account.
Speculative Position Limit: A maximum number of contracts which may be held by one person within a market when the individual is not a hedger.
Systematic Risk: Risk which cannot be eliminated with diversification.
Systemic Risk: Risk which is common to a whole market and has wide ranging effects.
Variable Price Limit: A schedule for limit price as determined by the exchange which varies from the normal allowable price movement.
