Traders Glossary

Backwardation:

It is the condition in the financial asset where the spot price is more than the future price.

Basis:

It is the difference in the future price and the cash price of a financial asset.

Bear market:

It refers to the market which is consistently falling over certain time period.

Bid:

It is the highest price at which a trader is ready to sell a certain financial asset.

Bull Market:

It refers to the market which is consistently rising over a certain time period.

Call Option:

Call options is a type of option that provides the holder of the option a right but not a compulsion to buy an underlying asset at a specified price for a specific time period.

Cash Market:

Cash market refers to the marketplace where people trade the physical commodities.

Cash Settlement:

It is a method where the futures or options contracts are traded where the market participants settle the contract in cash, rather than taking the delivery of the financial asset.

Closing Price:

It refers to the last price paid for a futures contract on any trading day.

Commission:

It refers to a fee charged to a trader for executing a contract.

Contango:

It is the condition in the financial asset where the futures price exceeds the spot price.

Delivery Month:

The month in which the delivery is scheduled to be made in accordance to the terms and conditions of the futures contract.

Derivative:

It is a financial instrument where the price of a derivative instrument is directly dependent upon the value of the underlying assets such as equity, or commodities.

Electronic Trading System:

It is a software program that is used to create orders and automatically submit those order to a market center or exchange.

Exchange:

It refers to a marketplace where financial instruments are traded. Such marketplace can either be purely physical exchanges or digital.

Exercise:

It is a process by which an option owner performs the tasks mentioned in the option contract.

Exercise Price:

It refers to the price that the holder of an option can buy or sell the underlying asset.

Expiration Date:

It refers to a date after which the option contract is not valid.

Forward Contract:

It is a private agreement between two parties to purchase or sell an asset at a preset price on a future date. At maturity, if the spot price is greater than the contracted price, the forward buyer makes a profit, whereas if the spot price is lower than the contracted price, the buyer makes a loss from the contract.

Fundamental Analysis:

It refers to the method of evaluating the securities in order to measure the underlying forces that can affect the well-being of the economy.

Futures Contract:

It refers to a legal agreement made in order to buy or sell a particular underlying assets at a predetermined price at a specified time in the future. Futures contract are standardized and are traded on a futures exchanges.

Highest Price:

It refers to the highest price of a particular futures contract for the day.

In-the-money:

It refers to a condition where the call option’s strike price is less than the market price of the underlying assets, or in case of put option, the strike price of a put option is higher than the market price of the underlying assets.

Intrinsic Value:

It refers to the difference between the price of the underlying assets and the strike price.

Last Trading Day:

It refers to the last business day before the option expiration where the purchase and sale of options can be made.

Liquidity:

Liquidity refers to the capability to enter and exit the trade easily.

Long Position:

It refers to a condition wherein a trader buys an option and then sells later.

Margin:

It refers to the total amount of money deposited by the parties involved in futures or options contract in order to ensure the performance of the terms of the contract.

Margin Call:

A call made by a clearinghouse that an investor inject further cash in order to bring the margin deposits to the required minimum level.

Mark-To-Market:

It refers to a process where the price of the underlying assets which are held in an account are valued each day to reflect the closing price.

Offer Price:

It refers to a price at which a seller is willing to sell an option.

Offset:

The liquidation of a contract is known as offset.

Option Contract:

It refers to the contract that gives the buyer the right, but not the obligation to buy a specified quantity of commodities at a specified price within a specific timeframe and vice versa.

Option Premium:

It is the price which a buyer pays for an option.

Out-of-the-money:

It refers to a condition where the strike price of the call option is more than the underlying assets’ market price, or in case of put option, the strike price of a put option is lower than the market price of the underlying assets.

Over-the-counter market:

A market where the commodities are traded directly between the trading parties rather than on a specified exchange.

Put Options:

Put options is an option that gives the holder of the option a right to sell an underlying asset at a specified price.

Settlement Price:

It refers to the price at which the option contract is settled.

Short Position:

It refers to a condition wherein a trader sells first and then buys later (at a future date).

Spot:

Spot refers to the market price of a financial instruments or financial asset, which can be traded for immediate delivery.

Strike Price:

It refers to the price at which the trader of a call or put option can choose to exercise his right to buy or sell the derivative contract. In case of call option, the strike price is the price at which the derivative contract can be bought by the option buyer till the expiration, whereas in case of put option, the strike price is the price where the option can be sold by the trader.

Technical Analysis:

Technical analysis is the process of predicting movements in the prices of future financial products on the basis of the past price trends.

Theoretical Value:

It refers to the estimated mathematically derived value of the option contract.

Tick:

It refers to the minimal allowable increment in the price movements for a contract.

Underlying Asset:

It refers to the financial instrument on which derivative price is based on.

Volatility:

Volatility refers to the change in the price of the commodities over a specified time period.

Volume:

Volume refers to the total number of purchase and sales of contracts traded over a specified time period. The volume is usually referred to as the total number of transaction carried out for one trading day.

Writer:

It refers to the seller of the option contract.

Yield:

Yield refers to a certain amount of revenue generated by an investment or security.