• Skip to primary navigation
  • Skip to content
  • Skip to footer
StoneX®

Trade Futures, Spreads and Options with Confidence.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • Technical Ag Knowledge
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
  • Education
    • CME Group Resource Center
    • CME Group Offers
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • Apply
    • Access My Account
    • Funding
  • Contact
 

Know Your Trading Lingo: A List of Terms to Help You Speak Our Language

October 31, 2011 by John Payne| Tips & Strategies

As you start following the futures markets, you will find that brokers, traders, and individuals in the futures/commodities industry have certain “speak”. Much like the military, where exotic terms for everything are the norm, traders have their own language that could confuse a beginner. Specific market terms are difficult to comprehend at first but are required in order to communicate with other traders. I have listed some terms below that a new trader should learn.

  • Ask: Sometimes referred to as the “offer”. This is the price where someone is willing to sell an option or futures contract.
  • At the Money: The description of an option when its strike price equals the futures price.
  • Basis: The difference between the cash price of a commodity and its futures price. When basis is positive, the spot cash price is more expensive than the futures price.
  • Bid: The price at which a buyer is willing to pay.
  • Carry: Sometimes referred to as “cost of carry”. This is the cost it takes to hold a commodity until delivery. It is a combination of costs including interest, storage and insurance.
  • Commercials: Any company that uses the physical commodity in a production, processing, or exporting capacity.
  • Day Order: A futures or options order that will only execute during the current session. Day orders that expire unfilled are called “unable”.
  • Deferred Contract: Any contract not traded as the front month contract.
  • Fill: The price at which a contract was bought or sold.
  • First Notice Day: This is the first day in which a commercial or end user of a commodity must provide the exchange with the intent to deliver or take delivery. Typically, all speculative interest should be out of the contract by this day.
  • Flat Account: An account with no positions on the books.
  • Initial Margin: The amount of money required to be in the account to hold a position over night.
  • Last Trading Day: The day on which trading stops for a futures contract or option — this is after the first notice day. Most traders should avoid trading the contract until this point unless they plan to take delivery.
  • Limit Move: A trade at the maximum price fluctuation for the day. A contract will be considered “limit up” or “limit down” if a contract makes its maximum limit move.
  • Liquid market: A market where one can buy or sell a contract easily. Liquid markets have good volume and a narrow bid/ask. Liquidity can become an issue when trying to buy or sell multiple contracts at one price. The market is an auction; the number of participants will determine liquidity.
  • Nearby Contract: Also referred to as the “front month”. The nearest, most active contract traded.
  • Mark to Market Accounting: The daily reconciliation of open positions in reference to profit or loss. Unlike equities accounts, every futures account is market to market daily. A common misnomer is that profits or losses aren’t realized until a trader closes a futures position. Mark to market accounting means that the cash value of the account fluctuates with the value of positions on the books.
  • Out of the Money: An option is out of the money if the price of the underlying futures contract is above a put strike price or below a call strike price.
  • Open Interest: The total number of futures or options that have not been closed or delivered upon. A market with historically high open interest can sometimes indicate a near term top or bottom on the horizon.
  • Position Limit: The maximum number of contracts a trader can hold. This is determined by the CFTC board of governors and the exchanges. These limits have been in the news recently as the CFTC has lowered these limits from previous levels.
  • Roll: The simultaneous exit and entry of a position in different contract months. A roll takes place when a trader exit and enter positions in the same commodity in the new front month to avoid taking delivery.
  • Short Covering: Traders with short positions in the market buy the contract back to exit positions. Sometimes markets can move sharply higher, not from fresh buying, but shorts exiting the market. This is called a short covering rally or a short squeeze.
  • Spread: This term has two definitions. The “spread” is another word for the bid/ask. Asking your broker ‘what’s the spread?’ will be a question of what the market wants to buy or sell. The term “spread” can also refer to a type of trade that involves the simultaneous purchase and sale of two or more options or futures positions.
  • Strike Price: The price at which an option will expire in or out of the money.
  • Tick: The minimum amount of price fluctuation in a futures or options contract.

Filed Under: Tips & Strategies

About John Payne

John Payne is a Senior Futures & Options Broker and Market Strategist with Daniels Trading. He is the publisher of the grain focused newsletter called This Week in Grain, along with being a co-editor of Andy Daniels’s newsletter, Grain Analyst. He has been working as a series 3 registered broker since 2008.

John graduated from the University of Iowa with a degree in economics. After school, John embarked on a 4 year career with the United States Navy. It was during two tours in Iraq and the Persian Gulf where John realized how important commodities are to the survival of society as we know it. It was this understanding that brought about John’s curiosity in commodities. Upon his honorable discharge in 2007, John’s intense interest in the world of commodities inspired him to move to Chicago and pursue his passion in a career in the futures arena.

After a three year position with a managed futures firm specialized in livestock trading, he was given the opportunity to join the team at Daniels Trading. Being in the business and seeing how other IB’s operated, it was the integrity and straightforward approach of the Daniels management team and brokers that attracted him to make the move. Since joining Daniels, John has broadened his fundamental and technical analysis of the markets even further. John has been writing his newsletter This Week in Grain under the Daniels banner since 2011.

Working in high pressure industries like the military and capital markets, John has learned the value of preparation in times of stress. He believes that instilling within his clients the value of a good plan and a cool head for dealing with the day to day swings of commodity markets. He treats every client as a teammate, understanding that his job is to help clients achieve their goals, whatever they may be.

John is a proud supporter of the Iraq and Afghanistan Veterans of America, the Veterans of Foreign Wars and the National Corn Growers Association. When he is not working, he enjoys athletics of all kinds and spending time with his wife and their two kids.

John’s commentary is featured in the following publications:

* All Ag Radio – Sirius Channel 80
* AM 880 KRVN – Lexington, Nebraska
* RFD TV
* Wall Street Journal
* Barron’s
* China News Daily (English version)

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

StoneX Financial Inc.
Daniels Trading Division
230 South LaSalle Suite 10-500
Chicago, IL 60604
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top