Learning the Ropes: Using Fundamental and Technical Analyses to Predict Prices When trading futures and options,

money is made by buying low and selling high, or vice-versa. If you could predict prices perfectly, then making money in futures and options would be terribly easy. Unfortunately, predicting futures prices has proven to be anything but easy. While most futures traders admit that it is impossible to predict prices perfectly, most nevertheless believe that they can improve their chances beyond a "pure guess". How they go about this differs from trader to trader. Some use fundamental analysis, others rely on technical considerations, while still others base their trading on gut instinct or seemingly totally unrelated events such as celestial movements. By far, the most commonly used methods of price prediction can be grouped into either fundamental analysis or technical analysis. The general features of these two techniques are described below. You can find industry-leading textbooks containing more specific and detailed information in our bookstore.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Fundamental Analysis Fundamental analysis attempts to predict futures prices by determining the factors or variables that effect the futures price, and then monitoring these variables for change - as they change, you can predict the resulting change in the futures price. For instance, the fundamental determinants of a Deutschemark futures price may be the level of short-term interest rates in the United States relative to those in Germany, the rate of inflation in the United States relative to that in Germany, net merchandise trade flows between the two countries, and the outstanding relative supplies of money. Determining exactly how each of these variables effects the futures price is done through regression analysis which borrows heavily on economics and statistics. Theoretically, once the relationship is identified, you are able to predict the movement of the futures price resulting from, say, a decrease in German interest rates, and then establish the appropriate futures position.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Advantages of Fundamental Analysis: * Intuitive Appeal: Most of us accept the precept that one thing causes another. Using fundamental analysis to predict futures prices has that precept as its foundation, and attempts to identify the "causing" factors. In this sense, the approach is intuitively appealing. * Objectivity: Fundamental analysis is objective in that relationships are tested by sound mathematical and statistical methods. Those that fail are discarded, while those that pass are perceived as being credible. There is no room for personal predilection or bias. The reliance on objectivity is desired by many traders who hold little confidence in their ability to predict prices purely by discretion. * Available Resources: Attempting to predict variables through fundamental analysis is not exclusive to the futures trader. Companies attempt to predict sales, governments attempt to predict unemployment and meteorologists attempt to predict the weather. With all of these industries attempting to harness the power of fundamental analysis, one benefit is a refinement and improvement in the pool of fundamental analytic techniques available. For instance, if a good technique is developed to predict the weather, it can be applied to futures prices and, hopefully, yield satisfactory results as well. This is exactly how Chaos Theory, a particular type of fundamental analysis, moved into the realm of the futures trader. commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Disadvantages of Fundamental Analysis: * Data Intensive: Fundamental analysis relies on a considerable amount of data to test the significance of variables. Such data are often not easy to acquire and, moreover, are seldom available without charge. As well, data are often contaminated with reporting errors which must first be identified and corrected. * Labor Intensive: Fundamental analysis also requires a considerable amount of human labor - time and energy. As well, methods have become so complex that few individuals short of a trained economist can properly apply the

available technology. As an example, large banks often employ teams of economists for formulating their inhouse prediction models. * Specificity: It is often difficult, even when data, time and energy are available, to determine a relationship which is robust and which enables satisfactory price prediction. This may be, in part, because so many variables are linked together, each effecting the other, that it is difficult to identify causal relationships. You may well spend a lot of time, money and energy looking for a causal relationship, and never find one.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Technical Analysis Technical analysis attempts to predict the price of a futures contract based solely on historical prices of the futures contract. Technical analysts contend that prices already contain all relevant information, so fundamental analysis is redundant. By the time you determine where prices should be based on the information of a fundamental model, you will find that prices are already there; that is, prices have already encorporated the available information and have moved accordingly. Consequently, one needs to study price movements themselves in order to predict prices. Technical analysis relies heavily on chart formations and indicators. There are several chart formations, for example the head-and-shoulders pattern and the double-top, which are used to predict a change in price trend: from up to down. There are other price patterns that suggest that prices will continue to trend, or break out of a period of consolidation (sideways movement). Indicators, such as momentum and the RSI over-bought/over-sold indicator, are used to identify the likelihood of a price reversal, or the sustainability of the current price movement. Moving averages of historical prices are also used to generate buy and sell signals, and warn of a possible price reversal. The body of technical analysis is substantial, and continues to grow as traders develop new and supposedly better chart patterns and indicators. The chief advantage of technical analysis is its simplicity: applying many of the techniques only requires an historical graph or chart of the futures price. Such prices are widely available from charting services and free updated daily charts are available on the World Link Futures web site. This can, however, also be a disadvantage. Since everyone has access to historical prices, and since each can also buy and read the same textbook on technical analysis, it is intuitively difficult to explain how you can expect to outperform other traders. Nevertheless, technical analysis has developed a large following.commodity.

Learning the Ropes: Trading Tips for Beginners Trading futures and options, like most things in life, is a learning process. As you trade, you will gain hands-on experience of the factors that drive markets, the nature of price volatility, and how you react to various situations such as losing money, or making money. This knowledge, in turn, can help make you a better trader. While there is no substitute for actual trading experience, the following trading tips will help your initial trading experience be a positive one.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Watch Before You Trade Once you have identified a market that you wish to trade, spend some time watching prices before you establish a position. By watching prices, you will get an idea of the typical volatility of the market which gives you an indication of the cost of trading that market. The more volatile the market, the more expensive it is to trade. Be sure to check that the initial and maintenance margin requirements will still leave you with sufficient excess margin in your trading account. (Margin requirements are higher for more volatile markets.) Also check the contract specifications to determine the trading hours of the contract, the contract months, and the last day of trading. For instance, if the nearby contract stops trading in one week, it may be better to enter a position into the next active contract month so as to avoid the commission of a contract roll.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Start Small When you decide to enter a futures or options position, there is no shame in starting small, for example, trading just one contract. In fact, most traders, not counting the large CTAs or funds, tend to trade only one or two contracts at a time. As you accumulate trading experience, you can always increase your trading activity when appropriate.commodity futures broker, futures trader, commodities futures trading, financial and commodity

futures markets, paper trading, full service broker assisted accounts. Use Stop Orders Stop orders are used to limit loss on a futures position. It is a good idea to establish a stop price that caps maximum tolerated loss on a futures position the moment that you decide to initiate it, and call in your stop order to the futures order desk every day as necessary. (Stop orders are day orders and expire at the end of every day.) Don't wait to set a stop later as your best judgement may falter if you start to lose money and you consequently may talk yourself into accepting more loss than what you should have tolerated. The proper use of stop orders can protect your trading capital which, in turn, protects your peace of mind.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Buy Options As a beginning futures trader, you may want to consider trading in only one way: buying options. If you think prices will rally, buy call options, and if you think prices will decline, buy put options. The great advantage of limiting yourself to only buying options is that you are always protected from a risk management viewpoint. The most you can lose is the premium paid for the options (and the associated commission charges).commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Don't Over Monitor In the "old days", most futures investors based their trading decisions on prices read from the business section of a major newspaper. Even though they were one day old, they were still sufficient to enable many traders to accumulate substantial wealth. With futures and options prices available on the Internet, these days, almost any investor can get a steady stream of prices throughout the trading day. While timely information is certainly a good thing, beginning traders must be careful not to over monitor the market. Being glued to the computer screen to watch prices all day can make you "jumpy", with the consequence that you may react prematurely - or poorly - to price movements.

What are Commodity Trading Advisors? A Commodity Trading Advisor, or CTA, is a professional futures investor and is registered as such with the Commodity Futures Trading Commission, the regulatory agency with jurisdiction over the futures market in the United States. Most CTAs have spent a great deal of time studying, analyzing and trading commodity futures covering everything from pork bellies to foreign currencies. Some had their start in the futures pit, others in the academic halls, and others still in mixed and varied occupations. Despite these different beginnings, all are alike in that they demonstrate an aptitude for trading futures.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. CTA Investment Services CTAs provide several services. Some author periodic newsletters that describe the futures market and recommend specific investment strategies for their clients. Others specialize in designing computer trading or analytic programs. Still others tour the countryside hosting educational seminars. Because of their experience in trading and analyzing futures markets, CTAs are regarded very highly in the futures investment arena..commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Managed Accounts CTAs can legally trade futures for you in the event that you have neither the desire nor the time to trade yourself. In this case, the customer opens a futures trading account and gives the CTA explicit authority to transact on their behalf. A substantial sum of money is usually required to participate in a managed account, often over $250,000, which precludes many people from benefitting from the expertise of a CTA. Generally, CTAs receive a management fee and an incentive fee for managing customer funds. The management fee is expressed as a percentage of the amount of customer funds that is managed. These fees are due and payable regardless of the investment performance of the CTA. Management fees are typically small and usually range anywhere from one to five percent. As an example, a customer who contributed $1,000,000 to a CTA having a 2.5% management fee would pay $25,000 annually. CTAs also receive an incentive fee consisting of a percentage of the profits that they generate by their trading. The incentive fee constitutes the main payment to the CTA for services rendered. Incentive fees can range anywhere from fifteen to forty percent and are paid to the CTA only if profits are earned. If a CTA incurs a loss in one year, no incentive fees are paid for that year and, typically, incentive fees will not be paid thereafter until

all loss has been fully recouped. As an example, a CTA charging a 30% incentive fee and who earns 60% in profits for a customer over the year would keep 18% for themselves. Before a customer can make an educated decision over whether or not to invest funds with a particular CTA, they need to be given sufficient information about the candidate CTA. All such information is provided in the Disclosure Document which a CTA must have prepared and have had inspected by the Commodity Futures Trading Commission prior to soliciting any customer funds.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. The disclosure document includes information on: * personal history of traders, * schedule of fees, * trading style and methodology, * investment track record, * minimum capital contributions, and * any other pertinent information. It is the disclosure document itself which represents solicitation for funds by the respective CTA. A CTA cannot accept customer funds until the customer has received and read the disclosure documentation. This is required by law and is done to safeguard the interests of the customer.

Frequently Asked Questions About Trading Futures and Options What is the biggest mistake made by many futures traders? The biggest mistake that most traders make, especially new traders, is trading too much with too little capital. There are sound mathematical reasons to expect such trading activity to ultimately result in loss and, in fact, this has been confirmed by numerous reports and surveys within the industry: most traders starting out with $5,000 or less tend to lose their money within the first six months of trading. The key to successful trading is to gauge your trading activity based upon your capital, and allow plenty of cushion in the form of excess margin for unexpected price movements. Is it possible to make really big profits trading futures? Yes, it is, but keep this in mind. There is a relationship between risk and return that has shown to hold over time, namely, that higher returns are often associated with higher risk. So while it is possible to make big profits trading futures, the trader is also exposed to considerable risk - risk of losing money. Beginning traders are probably better off "lowering their sights" a little and, consequently, playing it more safe.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. What exactly is leverage? Leverage is a measure of the market value of your futures position relative to the amount of your trading capital. The greater the degree of leverage, the more futures value you control relative to your capital. Futures contracts, in themselves, are highly leveraged instruments: a little bit of money controls a lot of futures value. For example, some futures can be bought or sold for as little as two percent of the market value of the futures required as margin. It is leverage that enables tremendous profit or loss to be made relative to your trading capital. Highleveraged trading implies that you are using almost all of your available capital to meet margin requirements, and entails considerable risk as it can result in significant gains or significant losses. Low-leverage trading implies that you have plenty of excess capital in your account to cover unexpected price movements, and is consequently less risky. Properly controlling leverage is a necessary requisite to trading futures successfully.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. How can you sell futures if you don't already own them? One of the greatest advantages of futures contracts is that you can sell them without first owning them. The reason that this is possible is because futures represent an agreement to buy or sell something at some time in the future. Because it represents a deferred transaction, futures can be sold just as easily as they can be bought. There is no difference at all between buying and selling from a trading perspective. Thus, a futures trader who expects prices to fall can sell futures now and hopefully buy them back later at a cheaper price, and make a profit.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.

Will I get a truck load of soybeans dumped in my yard? When a futures contract expires, the seller must deliver to the buyer whatever commodity is represented by the futures, such as corn, beans, or live cattle. This is ideal for farmers who use futures to sell their crop, but a problem for traders who neither wish nor are capable of physical delivery. Fortunately, there is any easy way to handle this. The futures trader only needs to offset their position prior to contract expiration. For example, traders who are long beans must sell all of their bean contracts prior to expiration. Similarly, a short futures position is offset by buying back futures. Once offset, there is no longer any obligation outstanding and the trader need not worry over having a truck load of soybeans dumped in their yard.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts. Where are futures traded and where can I get prices? Futures are traded only on designated futures exchanges, and in pits allocated specifically to that particular futures. You can be anywhere on the planet when you decide to buy or sell a futures, but to be executed, your order must get to the pit. That is the job of the broker. You call your broker with your futures order, and they relay it to the pit where it is executed. By law, futures orders cannot be executed outside of the pit. (Some exchanges also use automated trading facilities or computer networks which serve as trading pits.) Futures prices can be found in many places. You can find Internet links on the World Link Futures web site. Any widely circulated business newspaper should list the major futures contracts on a daily basis, providing volume and open interest information as well as price data.

Futures and Options Glossary Actual - The physical commodity. Afloat - Physical commodities onvessels. Arbitrage - The simultaneouspurchase of one commodity, future or option, against the sale ofanother in order to profit from distortions from usual pricerelationships. Variations include simultaneous purchase and saleof different delivery months of same commodity, future or option;of the same commodity, future or option and delivery month on twodifferent exchanges; and the purchase of one commodity, future oroption against the sale of another commodity, future or option.See also "Spread." Basis - The difference between acash price at a specific location and the price of a particularfutures contract. Bid - An offer to buy a specificquantity of a commodity, future or option at a stated price. Buy Hedge - (Long Hedge) - Buyingfutures contracts/call options or selling put options to protectagainst possible increased cost of physical commodities that willbe bought in the future. See also "Hedge." Call Option - An option that givesthe buyer the right to be long the underlying futures contract ata specific price (strike price) on or before the expirationdate. Call option buyers are not obligated to be long; they havethe right to be long. See also "Put Option" and"Strike Price." Carry - Cost of warehousing thephysical commodity, generally including interest, insurance, andstorage. See also "Full Carry." Carryover - Grain and oilseedcommodities not consumed during the marketing year and remain instorage (called ending stocks). Ending stocks are then added orcarried over to the next marketing year. Cash Commodity - The physicalcommodity, also known as actual. Certified Stock - Stocks of aphysical commodity that have been inspected and found to be of aquality that is deliverable against futures contracts, stored atthe delivery points which are designated as regular or acceptablepoints for delivery by the commodity exchange. Charting - See "TechnicalAnalysis."

C. I. F. - Cost of insurance &freight paid to port of destination. Clearinghouse - An agency connectedwith a commodity exchange or a separate corporation with theresponsibility of reconciling all trading accounts and clearingtrades, managing the delivery process and keeping accuraterecords of customers accounts. They are also responsible forcollecting and maintaining margin monies. See also "FuturesCommission Merchant." Closing Range - The range of pricesat which transactions took place at the closing of the market. Commercials - Cash grain firms,exporters, or processors. Commodity Credit Corporation (CCC) -A wholly government-owned corporation established in 1933 toassist U.S. agriculture. The major operations of the CCC areprice-support programs in which it purchases excess supplies ofcommodities, and provides assistance in foreign exports ofagricultural commodities. Commodity Futures Trading Commission(CFTC) - A federal regulatory agency charged and empoweredunder the Commodity Futures Trading Commission Act of 1974 withregulation of futures trading in all commodities. The commissionis comprised of five commissioners, one of whom is designated aschairman, all appointed by the president subject to senateconfirmation, and is independent of all cabinet departments. Contract Grades - Standards orgrades of commodities listed in the rules of the exchanges thatmust be met when delivering cash commodities against futurescontracts. Grades are often accompanied by a schedule ofdiscounts and premiums allowable for delivery of commodities oflesser or greater quality than the contract grade. Cross Hedge - Hedging a physicalcommodity using related futures or options contracts to managerisk. An example would be to use corn futures to hedge grainsorghum (milo). Crush - A process that can convertone physical commodity into by-products that are also representedby futures contracts such soybeans to soybean meal and soybeanoil. Can also mean the purchase soybean futures and the sale ofsoybean meal and soybean oil futures. Similar to the"Crack" which is involves crude oil, gasoline, andheating oil. Day Order - A buy or sell order thatis valid for a particular trading session or typically duringtrading for one day. Automatically expires on the day it wasplaced, at the end of trading, if not filled. Day Trades - futures and optionstrades that are established and then liquidated by the close oftrading, on the same day. Deferred Futures - The particularfutures contracts currently trading that expire during the mostdistant months as contrasted to the spot or delivery month. Delivery - The transfer of thephysical commodity from the seller of the futures contract to thebuyer of the futures contract as specified in the futurescontract. Hence each contract or exchange has its own rules fordelivery process. Can also mean the cash settlement of thosecontracts, which are not actually delivered upon. See also"Tender." Delivery Grade - See "ContractGrade." Delivery Month - A particular monthin which the futures contract specifies delivery may occur.Sometimes called the contract month or spot month. Delivery Notice - Notice from theclearing house of a seller's intention to deliver the physicalcommodity against his short futures positions; precedes and isdistinct from the warehouse receipt or shipping certificate,which is the instrument of transfer of ownership. Also see"Notice of Intention to Deliver" &"Tender." Delivery Points - Those locationsand facilities designated by a commodity exchange at which stocksof a commodity may be delivered in fulfillment of a contract,under procedures established by the exchange. EFP - Exchange for Physicals - Thisis an exchange of the physical commodity for a monetarysettlement.

Expiration Date - The day or datethat a futures' option expires. Specifically it is the last daythat the particular option can be exercised. See also "LastTrading Day." Fast Market - A characteristic of amarket in which open outcry trades executed surpass the pitrecorders' ability to record all trades for a given deliverymonth or months. Generally occurs when volume is very large for aparticular month(s). Fill or Kill Order - A limit orderfor futures or options that is to be filled immediately enteringthe pit and canceled if the broker is unable to fill it at once. First Notice Day - The first day onwhich "Notices of Intent to Deliver" the physicalcommodity can be made by the seller to the clearinghouse and bythe clearinghouse to a buyer. F.O.B. - Free on board; withoutcharge to the buyer for goods placed on board a carrier at thepoint of shipment. Forward Contract - A cashtransaction where the seller agrees to deliver a specificquantity and quality of goods to a specific place sometime in thefuture with prices established according to the contract. Thiscould be the day of the contract or even the day of delivery.Since these contracts are not standardized, specifications arespecific to each particular contract. Forward Price - Refers to sales intothe future of a physical commodity by the use of forwardcontracting or futures and options hedging. It is a marketingtool for grain buyers and sellers. Free Supply (or Free Stocks) -Stocks of a physical commodity which are available for commercialsale, as distinguished from government-owned or-controlledstocks. Full Carry - A situation in thefutures market when the price difference between delivery monthsreflects the cost of interest, insurance and storage. Fundamentals - Conditions that couldaffect the price movement of futures and options. This includesbut is not limited to weather, supply & demand, governmentpolicy, and foreign policy. Fundamental Analysis - Using thefundamentals to analyze and predict future trends of futures andoption prices. Distinguished from Technical Analysis. Futures Clearing Merchant - (FCM) -An individual or corporation that accepts or solicits orders forfutures and options trading and accepts monies from customers tomaintain accounts. Also responsible for reconciling al tradeswith the exchange clearing house. Futures Contract - An agreement madeat prices established in the trading pit or electronic trading tobuy or sell a physical commodity sometime in the future. Futurescontracts are standardized agreements, which specify quantity andquality of the physical commodity. They also specify the time ofdelivery and exchange designated point of delivery. Hedge - See "Buy Hedge" or"Sell Hedge." Hedging - The use of futures and options toreduce risk of price movement by establishing the oppositeposition of what an individual or corporation plans to do with aparticular physical commodity in the future. An example would bea corn farmer that planted corn in May, sells a contract of DecCorn futures on June 10, to offset risks of prices moving lowerinto the fall because he would be selling harvested corn in thefuture. High - The highest price establishedfor a futures or options contract at any given time. An examplewould be a high for the day (daily high), or weekly high, monthlyhigh or contract high. Initial Margin - The amount ofmonies or assets a futures/options trader must have in thetrading account at the time the order is placed as required bythe Futures Clearing Merchant or Exchange. See also"Maintenance Margin." Inverted market - An abnormalsituation in futures or cash where the front month or months arehigher than distant months in the same crop year. Typically iscaused by a shortage of the physical commodity.

Last Trading Day - The day on whichtrading ceases for the current delivery month of either futuresor options. Last Notice Day - The final day onwhich notices of intent to deliver on futures contracts may beissued. Life of Contract - The period fromthe first trading day to the last day of trade (inclusive) for aparticular trading month in futures and options. Limit Move - The maximum move inprices for a particular contract as permissible during onetrading session, in accordance with exchange rules. Limit Order - An order in which thecustomer sets a limit on either price and/or time of execution. Liquid market - A market whereselling and buying can be accomplished with ease, due to thepresence of large open interest or a large number of interestedbuyers and sellers willing and able to trade substantialquantities without a substantial change in price. Liquidate -The sale of an equalnumber of long futures/options contracts (the same deliverymonth) or buying an equal number of short futures/optionscontracts (the same delivery month) or entering the deliveryprocess by making or taking delivery. See also"Offset." Liquidation - A characteristic of amarket where holders of long positions, sell (the same deliverymonth), and holders of short positions, buy (the same deliverymonth), and open interest declines. Long - To buy or have bought afutures contract and/or call options on futures withoutoffsetting a short position. Can also mean to own the physicalcommodity such as a producer with corn in a storage bin for saleat a later date. Maintenance Margin - The amount ofmoney required to maintain positions in an account. Margin - Money or assets (such asT-bills) deposited into an account for the purpose of tradingfutures contracts. Margin can vary among different commodityfutures contracts, it can be required when selling options, andmust be maintained in accordance to exchange and FCM policy. Margin Call - A call or notificationto a customer that their margin account (trading account)requires additional margin to maintain positions in accordancewith policy or exchange rules. M.I.T. - (Market If Touched) - Anorder that becomes a market order when a particular price isreached. A sell MIT is placed above the market; a buy MIT isplaced below the market. M.O.C. (Market on Close) - An orderto buy or sell at the end of the trading session at a pricewithin the closing range of prices. Market on Open - An order with theintention to buy or sell at a price within the opening range ofprices when the trading session begins. Market Order - An order to buy orsell futures/options contracts of a specified delivery monthwhich is to be filled at the best possible price as soon aspossible. Maturity - The time between thefirst notice day and the last trading day of a commodity futurescontract. National Futures Association - (NFA)- A futures industry supported, self-regulatory organization.Responsibilities include enforcing ethical standards, customerprotection rules, evaluate futures professionals, audit thoseprofessionals for financial and compliance standards and provideconflict resolution for futures/options related disputes. Nearby - The nearest deliverycontract month of a commodity futures market. Upon first noticeof delivery, referred to as the "spot month or deliverymonth."

Notice of Intention to Deliver - anotice that must be presented by the seller to the clearinghousefor the purpose of making delivery. The clearinghouse (exchange)assigns the notice to the oldest outstanding position held by abuyer in accordance with the contract specifications. Offset - The sale of an equal numberof long futures/options contracts (the same delivery month) orbuying an equal number of short futures/options contracts (thesame delivery month). An example: a trader is long 1 July '97Soymeal contract and wants to be out of the market, he wouldoffset by selling 1 July '97 Soymeal contract. Once executed,that trader has no position. Open Interest - The total number offutures contracts of a given commodity that have not yet beenoffset by opposite futures transactions nor fulfilled by deliveryof the commodity; the total number of open transactions. Eachopen transaction has a buyer and a seller, but for calculation ofopen interest, only one side of the contract is counted. Opening Range - The range of pricesthat occurred at the start of trading. Open Order - An order that remainsin effect until canceled by the customer or until thefutures/options contract expires. Option - The right, but not theobligation, to buy or sell an underlying futures contract at aspecific price during a specified time period. (Can also mean theprice of cash grain or oilseed that is equal to the underlyingfutures price. Example: The cash price for soybeans in the firsthalf of July is 8.00 and at the same time, July futures are8.00.) See also "Call Option," "Put Option"and "Strike." Original Margin - See "InitialMargin." P & S statement - (purchase& sale) - A statement sent by a futures clearing merchant toa customer regarding their trading account when a transaction hasoccurred. Shows new positions, offset positions, profit and loss,commissions, etc. Position - Commitment or interest inthe futures market. Example: a trader who has purchased a JulySoymeal contract holds a long position. A short position is tohave sold futures/call options or bought puts. Long positions arebuying futures/call options and selling puts. A position isdetermined by weighing the number of long positions against thenumber of short positions (including options). Position limit - The maximum numberof futures contracts one can hold as determined by the commodityfutures trading commission and/or the exchange upon which thecontract is traded. Premium - Generally, the excess ofcash commodity value over a futures contract or over another cashcommodity value or of one futures contract price over another.Can also mean option premium, which is the value of the option atthe time of its sale. The buyer pays the premium (which islimited risk) and the seller receives the premium (which hasunlimited risk. Option premium is the price determined by openoutcry in the pit between buyers and sellers. Characteristicssuch as the strike price and expirations are already set inaccordance to each particular contract. Price Objective - The price where aperson analyzing prices, expects a particular market to achieve. Protection - Occurs when exchangetrading is closed and used with the purpose of reducing a grainbuyer's hedging risk. It reduces the price a seller would get forthe grain. Typically refers a "cushion" that commercialgrain buyers give themselves in addition to normal basis whenthey are concerned about prices dropping at the time the exchangeresumes trading (when the market opens). An example: on July 1,the upper Midwest had received no rain for 2.5 weeks and priceswere higher in that period. Unexpectedly, a rain occurs aftertrading hours, giving crops relief. Grain buyers might then take"30 cents protection in the beans," with theanticipation the rains will drive prices much lower on the open.The net effect is that a person selling beans before the marketopens would get 30 cents less. Price Trend - Generally refers tothe direction of price movement, can be used regarding how pricesare moving for the day compared to the previous trading session.

Higher - The majority of deliverymonths for a particular commodity are higher than the previoustrading session or previous day. * Firm - Prices are higher, but not significantly. * Steady - prices are unchanged. * Weak - Prices are trending lower, but not significantly. * Lower - Prices for most contracts are significantly lower. Put Option - An option that givesthe buyer the right to be short the underlying futures contractat a specific price (strike price) on or before the expirationdate. Put Option buyers are not obligated to be short, they havethe right to be short. See also "Call Option," and"Strike Price." Rally - Upward price movement. Range - The difference between thehighest and lowest prices recorded during a specified tradingperiod, such as the range for the day or week. Re-Tender - Traders offering forsale on the open market, the commodity for which the trader wasissued a Notice of Intent to Deliver. If completed, a trader canliquidate their obligation to take delivery of the commodity. Canalso mean offering to buy a commodity after passing on an tender,such as South Korea re-tendering for 54,000 tonnes US Corn afterpassing at higher prices. Roll Over - Moving from one deliverymonth in a futures contract to a delivery month farther away,such as a holder of long July corn offsetting that position andbuying a Sep contract. Usually done on the same order andexecuted at the same time. Round Turn - Generally refers to theoffsetting of a position. Sell Hedge - (Short Hedge) - sellingfutures contracts/call options or buying put options to protectagainst the possible decrease of physical commodity prices whichwill be sold in the future. See also "Hedge." Settlement price - Established by anExchange as the official price for any particular future oroption at the close of each trading session. Also referred to asthe closing price. See also "Closing Range." Short - To sell or have sold afutures contract and/or call options on futures, withoutoffsetting a long position. Can also mean to be in need of thephysical commodity such as a hog producer that buys soybean mealto feed hogs. Short Covering - The buying offutures/options in order to offset a short position. Generallyreferred to when traders are taking a profit or trying to controllosses. Sideways - Typically a period inwhich market prices trade within a range, and not trending upwardor downward. Speculator - An individual whotrades futures/options contracts in an attempt to profit fromprice movement. The individual has no intention of owning orselling the physical commodity. Speculators assume risk fromHedgers and add liquidity to markets. Spot Commodity - The physicalcommodity. Spot Month - See "NearbyMonth." Spot Price - The price at which aphysical commodity is selling at a given time and place. Spread - Generally, the pricedifference of physical commodity values or over another physicalcommodity value or of one futures/options contract price overanother futures/options contract. See also "Premium." Spreading - Buying and sellingfutures contracts on the same order to be executed at the sametime. An example is placing an order to buy Dec Corn futures @3.00 and to sell Sep Corn futures @ 3.00 (0 cents premium) withthe anticipation that Dec futures will gain value faster than SepCorn futures (as in prices building "Full Carry").

Squeeze - A characteristic of amarket where traders are forced to liquidate at unfavorableprices. An example would be a market where there are more longpositions willing to take delivery than commodity available fordelivery. Holders of short positions wanting to get out of themarket are forced to offset at higher prices. Stop - (Stop Order) - A buy stop isan order that is placed above current prices and is activated(becomes a market order to buy) when prices reach that level orabove or are bid at that level or above. A sell stop is an orderthat is placed below the market and activated (becomes a marketorder to sell) when prices reach that level or below or areoffered at that level or below. Generally used to establish a newposition at a certain level or to manage risk once a position isestablished (prevent losses). Stop Limit Order - Similar to theStop Order with the exception that the order must be filled atthe stop level or at better prices. Strike - (Strike Price) - An option=sprice at which the underlying futures contract can be bought(call option) or sold (put option). An example would be a Nov8.00 Soybean Call, could be exercised to establish a long NovSoybean position at the $8.00 price level. See also "CallOption," "Put Option" and "Underlying FuturesContract." Technical Analysis - The study ofcharts which includes price movement, volume, open interest, etc.Typically performed with graphical analysis as to anticipatefuture direction of prices or trends, etc. Tender - An act on the part of theholder of short futures contracts to deliver the physicalcommodity in accordance to the contract specifications.Typically, the exchange or clearinghouse will issue to the oldestbuyer of long futures positions, the seller's "Notice ofIntention to Deliver." Can also mean offering to buy aphysical commodity, such as South Korea tendering for 54,000tonnes US Corn. Tick - The least amount of pricemovement in a futures/options contract. Time & Sales - An officialrecord of trading (buying & selling) including prices andtime. Trading Limit - Can also mean thelargest quantity of a futures/options, which may be bought orsold by one person during one trading day and/or the largestfutures/options position any individual is allowed to hold at anytime under CFTC regulations. See also "Limit Move." Trading Range - A range of pricesfor any given period such as the day's trading range from high tolow. Trend - In prices, means the generaldirection, either upward or downward price movement. See also"Price Trend." Can also mean a pattern in which thesame characteristic is occurring over a period of time, such as agovernment's trend to reduce inflation by raising interest ratesover one year. Underlying Futures Contract - Thespecific futures contract established (such as Dec Corn) when anoption buyer exercises their option right to buy or sell. Seealso "Call Option," "Put Option" and"Strike Price." Vertical Call Spread - Spreading twodifferent strike prices of options of the same commodity andexpiration date. Volume - The number of trades (buysor sells) in a given period such as one day