ueflnlLlons of MarkeLlng 1erms

ash MarkeL ueflnlLlons

Cash Market|ng 8as|s Lhe dlfference beLween a cash prlce and a fuLures
prlce of a parLlcular commodlLy on a glven fuLures exchange lL ls calculaLed
as 8asls cash prlce fuLures prlce 8asls can be poslLlve or negaLlve
8as|s Contract an agreemenL beLween a producer and a graln elevaLor (or
feedloL) LhaL speclfles Lhe cash prlce upon fuLure dellvery as a flxed amounL ln
relaLlon Lo Lhe fuLures prlce (above or below) Lhus flxlng Lhe basls
Deferred ayment a delayed paymenL on Lhe sale of a commodlLy wlLh a
preesLabllshed prlce
Deferred r|ce Contract a conLracL LhaL Lransfers LlLle of Lhe commodlLy from
Lhe producer Lo Lhe buyer wlLh Lhe prlce Lo be deLermlned aL a fuLure daLe
Iorward Contract a conLracL for Lhe cash sale of graln or llvesLock aL a
speclfled prlce for fuLure dellvery
M|n|mum r|ce Contract a conLracL LhaL esLabllshes a mlnlmum floor sale
prlce whlle allowlng Lhe seller Lo capLure a hlgher prlce lf prlce rlses
uLures MarkeL ueflnlLlons
Carry Spread when Lhe nearby fuLures monLh ls Lradlng aL a lower prlce Lhan
a dlsLanL fuLures conLracL
Carry|ng Charge a fuLures markeL condlLlon ln whlch dlsLanL fuLures
conLracLs are Lradlng aL successlvely hlgher levels Lhan nearby conLracLs and
above cash prlce offers arrylng charges ofLen lndlcaLe a surplus slLuaLlon A
full carrylng charge" refers Lo a carrylng charge hlgh enough Lo fully cover
sLorage and oLher assoclaLed ownershlp cosLs
Cert|f|ed Stocks uanLlLles of graln deslgnaLed and cerLlfled for dellvery by
Lhe exchange under lLs gradlng and LesLlng regulaLlons Lo dellvery polnLs
and/or warehouses speclfled and approved for dellvery by Lhe exchange
C|ear|ng nouse Lhe agency of Lhe fuLures exchange responslble for maLchlng
purchases and sales ensurlng proper conducL of dellvery procedures and
malnLalnlng adeuaLe flnanclng by member flrms
Contract Grades a uallLy deflnlLlon esLabllshed by Lhe exchange Lo
represenL Lhe sLandard Lype of graln accepLable for dellvery agalnsL a fuLures
conLracL lncluded ln speclflcaLlon ls Lhe premlum or dlscounL for dellvery of a
nonsLandard uallLy or Lype of graln
uLures MarkeL ueflnlLlons n
De||very Lhe seLLlemenL of a fuLures conLracL by recelpL of Lhe acLual physlcal
commodlLy or by Lhe Lender of a warehouse recelpL coverlng a conLracL unlL of
Lhe commodlLy
De||very month Lhe speclfled monLh ln whlch dellvery may be made under
Lhe Lerms of Lhe fuLures conLracL
De||very o|nts Lhose locaLlons deslgnaLed by Lhe exchange as auLhorlzed for
placemenL of Lhe physlcal commodlLy ln fulflllmenL of an explrlng fuLures
conLracL
De||very r|ce Lhe seLLlemenL prlce deslgnaLed by Lhe clearlng house as Lhe
flnal prlce recelved or pald ln fulflllmenL of a commodlLy fuLures conLracL
Iutures Contract a conLracL Lraded on a fuLures exchange for Lhe dellvery of
a speclfled commodlLy aL a fuLure polnL ln Llme MosL fuLures conLracLs do noL
resulL ln physlcal dellvery An offseLLlng LransacLlon usually occurs before
dellvery and any prlce dlfferences are seLLled ln cash
Iutures Lxchange (market) a cenLrallzed regulaLed markeL where an acLual
commodlLy ls noL physlcally Lraded lnsLead fuLures conLracLs are boughL and
sold
uLures MarkeL ueflnlLlons n
nedge Laklng a poslLlon ln Lhe fuLures markeL LhaL ls eual and opposlLe Lo
Lhe poslLlon one expecLs Lo Lake ln Lhe cash markeL Lhus provldlng proLecLlon
agalnsL adverse prlce movemenLs
In|t|a| Marg|n Lhe margln deposlL reulred by Lhe exchange when a new
fuLures Lrade ls enLered
L|fe of Contract Lhe perlod of Llme durlng whlch a parLlcular fuLures conLracL
ls Lraded from Lhe flrsL Lradlng day Lo Lhe lasL Lradlng day
L|m|t Move Lhe maxlmum change ln prlce from Lhe prevlous day's
seLLlemenL as esLabllshed by Lhe exchange 1he amounL of a llmlL move may
change from Llme Lo Llme as markeL condlLlons dlcLaLe
L|qu|dat|on Lhe cancellaLlon of a fuLure sale (purchase) obllgaLlon by Lhe off
seLLlng purchase (sale) of Lhe same fuLures conLracL
Long Lhe poslLlon creaLed by purchaslng a fuLures conLracL or ownlng a cash
commodlLy
Long nedge Lhe purchase of a fuLures conLracL Lo reduce Lhe rlsk of a prlce
lncrease A long hedge ls used Lo proLecL agalnsL rlslng lnpuL prlces such as
corn for a llvesLock feedlng operaLlon
uLures MarkeL ueflnlLlons n
Cffset Lhe lluldaLlon of a fuLures conLracL poslLlon or Lhe purchaser
of a fuLures conLracL (long poslLlon) offseLLlng reulres selllng an eual
number of conLracLs for Lhe same dellvery monLh or Lhe seller of a
fuLures conLracL (shorL poslLlon) offseLLlng reulres purchaslng an eual
number of conLracLs for Lhe same dellvery monLh
Cpen Interest Lhe LoLal number of fuLures conLracLs for a commodlLy
LhaL have noL yeL been offseL or fulfllled by dellvery of Lhe commodlLy
os|t|on an open commlLmenL ln a markeL long or shorL
ko|||ng the hedge forward lluldaLlon of Lhe orlglnal fuLures conLracL
and Lhe slmulLaneous purchase (long hedge) or sale (shorL hedge) of a
more dlsLanL fuLures conLracL Lo malnLaln Lhe hedge wlLhouL holdlng lL
lnLo Lhe dellvery monLh
Sett|ement r|ce Lhe dally prlce aL whlch Lhe clearlng house seLLles a
Lrade SeLLlemenL prlce are used Lo deLermlne accounL values margln
calls and lnvolce prlces for dellverles lL ls also called Lhe clearlng prlce
uLures MarkeL ueflnlLlons n
Short selllng a fuLures conLracL or Lhe need Lo purchase a cash
commodlLy
Short nedge Lhe sale of a fuLures conLracL Lo proLecL agalnsL Lhe rlsk of a
decrease ln Lhe prlce of Lhe physlcal commodlLy Lo be sold ln Lhe cash
markeL aL a laLer daLe
Spread Lhe dlfference beLween Lhe prlce and Lwo fuLures conLracL
monLhs lL also refers Lo Lhe slmulLaneous purchase and sale of Lhe same
or relaLed commodlLles wlLh Lhe expecLaLlon LhaL Lhe prlce dlfferenLlal
wlll resulL ln a proflL
8ear Spread Lhe slmulLaneous sale of a nearby fuLures conLracL and
purchase of a deferred conLracL wlLh Lhe expecLaLlon LhaL Lhe nearby
conLracL wlll lose relaLlve Lo Lhe deferred
8u|| Spread a slmulLaneous purchase of a nearby fuLures conLracL and
sale of a deferred conLracL wlLh Lhe expecLaLlon LhaL Lhe nearby conLracL
wlll galn relaLlve Lo Lhe deferred
uLures MarkeL ueflnlLlons n
Storage nedge a shorL hedge placed followlng harvesL wlLh graln belng
sLored on Lhe farm or ln a commerclal elevaLor SLorlng Lhe graln allows
Lhe producer Lo Lake advanLage of sLrengLhenlng basls should lL occur
whlle Lhe shorL hedge locks ln a general prlce level and reduces prlce rlsk
1echn|ca| Correct|on a prlce change agalnsL Lhe Lrend lL ls caused by
such conslderaLlons as charL formaLlons volume open lnLeresL or
dellvery condlLlons raLher Lhan by fundamenLal (supply/demand) reasons
Vo|ume Lhe LoLal number of conLracLs Lraded durlng a glven day
Maklng a 1rade ueflnlLlons
AttheMarket a Lerm LhaL lnsLrucLs Lhe broker Lo execuLe an order
lmmedlaLely aL Lhe currenL prlce aL whlch Lhe commodlLy ls Lradlng when
Lhe order enLers Lhe plL lL ls also referred Lo as a markeL order
L|m|ted Crder an order Lo whlch Lhere ls some resLrlcLlon aLLached as Lo
Lhe Llme or prlce for execuLlon of Lhe order
StopLoss Crder an aLLempL Lo llmlL markeL rlsk by placlng a lluldaLlon
order Lo be execuLed lf Lhe prlce moves Lo a deslgnaLed level
Margln Money ueflnlLlons
Marg|n Ca|| a noLlce LhaL addlLlonal margln money ls reulred Lo keep eulLy
ln your fuLures or opLlons (lf selllng opLlons) poslLlon Margln calls may resulL
from a loss ln Lhe fuLures or opLlons poslLlon or from lncreased exchange
reulremenLs caused by a hlgher prlce level or unusual markeL volaLlllLy
Marg|n Depos|t a good falLh" deposlL made by you wlLh Lhe brokerage
house and deposlLed wlLh Lhe fuLures exchange 1he money ls held on
accounL Lo lnsure agalnsL losses on open fuLures conLracLs and opLlons A
margln deposlL ls noL a down paymenL buL raLher a performance bond 1he
mlnlmum margln ls deLermlned by Lhe exchange and ls usually lower for
hedgers Lhan for speculaLors
Ma|ntenance Marg|n Lhe margln deposlL reulred by Lhe exchange Lo keep
eulLy ln your fuLures or opLlons poslLlon 1hls ls reulred when Lhe lnlLlal
margln has been depleLed by adverse prlce movemenL
Marg|n to the Market Lhe opposlLe of a margln call When a proflL accrues
Lo your fuLures or opLlons accounL you may wlLhdraw money from Lhe
accounL reduclng Lhe balance Lo Lhe mlnlmum malnLenance margln deposlL
reulremenL
pLlons ueflnlLlons
AttheMoney an opLlon wlLh a sLrlke prlce LhaL ls eual Lo or nearly
eual Lo Lhe prlce of Lhe underlylng fuLures conLracL
Ca|| Cpt|on an opLlon LhaL glves Lhe buyer Lhe rlghL buL noL Lhe
obllgaLlon Lo purchase (go long") Lhe underlylng fuLures conLracL aL Lhe
sLrlke prlce on or before Lhe opLlon's explraLlon daLe
Lxerc|s|ng Cpt|ons a procedure lnlLlaLed by Lhe buyer of an opLlon ln
whlch he Lakes ownershlp of Lhe underlylng fuLures conLracL aL Lhe
speclfled opLlon sLrlke prlce 1he seller ls obllgaLed Lo Lake Lhe offseLLlng
LransacLlon
IntheMoney for a puL opLlon when Lhe sLrlke prlce ls above Lhe
currenL prlce of Lhe underlylng fuLures conLracL (Lhe opLlon has lnLrlnslc
value) A call opLlon ls lnLhemoney when Lhe sLrlke prlce ls below Lhe
currenL prlce of Lhe underlylng fuLures conLracL (Lhe opLlon has lnLrlnslc
value)
Cpt|on 8uyer or no|der a person who buys an opLlon
pLlons ueflnlLlons n
Cffset Lhe lluldaLlon of an opLlons conLracL poslLlon or Lhe purchaser of
an opLlon (puL or call) offseLLlng reulres selllng an eual number of conLracLs
for Lhe same dellvery monLh aL Lhe same sLrlke prlce as orlglnally purchased
or Lhe seller of an opLlon offseLLlng reulres purchaslng an eual number of
conLracLs for Lhe same dellvery monLh aL Lhe same sLrlke prlce as orlglnally
sold
Cpt|on rem|um Lhe prlce of an opLlon whlch ls pald by Lhe buyer and
recelved by Lhe seller pLlon premlums are deLermlned by open ouLcry of
compeLlLlve blds and offers ln a Lradlng plL
Cpt|on Wr|ter or Grantor a person who sell an opLlon
CutoftheMoney an opLlon LhaL has no lnLrlnslc value or Lhe puL opLlon
Lhls occurs when Lhe sLrlke prlce ls below Lhe currenL fuLures prlce or a call
opLlon Lhls occurs when Lhe sLrlke prlce ls above Lhe currenL fuLures prlce
ut Cpt|on an opLlon LhaL glves Lhe buyer Lhe rlghL buL noL Lhe obllgaLlon
Lo sell ( go shorL) Lhe underlylng fuLures conLracL aL Lhe sLrlke prlce on or
before Lhe explraLlon daLe
Str|ke r|ce Lhe prlce aL whlch Lhe holder of an opLlon may choose Lo
exerclse hls rlghL Lo buy (call opLlon) or sell (puL opLlon) Lhe underlylng fuLures
conLracL
Mlscellaneous ueflnlLlons
8ear a person who expecLs lower prlces
8ear Market a markeL ln whlch prlces are decllnlng
8eef A|||ance a markeLlng efforL Lo secure hlgher markeL prlces An
alllance usually conslsLs of a group of producers ofLen uslng verLlcal
afflllaLlons lmprovlng producL uallLy and conslsLency are ofLen goals of
beef alllances
8u|| a person who expecLs hlgher prlces
8u|| Market a markeL ln whlch prlces are lncreaslng
Comm|ss|on Lhe brokerage fee for enLerlng and lluldaLlng a fuLures or
opLlons conLracL
Crop ear Lhe 12monLh perlod beLween Lhe beglnnlng of harvesL one
year and Lhe beglnnlng of harvesL Lhe followlng year
Lqu|ty Lhe dlfference beLween Lhe orlglnal purchase or sales prlce and
Lhe currenL markeL prlce of a commodlLy fuLures conLracL or opLlon
premlum
Mlscellaneous ueflnlLlons n
Iundamenta| (ana|ys|s) Lhe analysls of markeL supply and demand
condlLlons for a commodlLy
Market|ng |an a wrlLLen plan for each commodlLy produced lL
speclfles producLlon cosLs prlce goals poLenLlal prlce ouLlook producLlon
and prlce rlsk and a sLraLegy for markeLlng Lhe commodlLy
New Crop Lhe crop Lo be harvesLed for Lhe comlng crop year uependlng
on Lhe commodlLy and conLracL monLh fuLures conLracLs reflecL elLher
new crop or old crop producLlon
C|d Crop Lhe mosL recenL crop harvesLed uependlng on Lhe commodlLy
and conLracL monLh fuLures conLracLs reflecL elLher new crop or old crop
producLlon
r|ce S||de esLabllshes Lhe prlce ad[usLmenL for dlfferences beLween
pro[ecLed llvesLock base welghL (afLer shrlnk) and acLual sale welghL (pay
welghL) rlce slldes are necessary because heavler welghL caLLle usually
sell for a lower prlce per hundredwelghL Lhan llghLer welghL caLLle
Mlscellaneous ueflnlLlons n
keta|ned Cwnersh|p verLlcally lnLegraLlng Lhe cowcalf operaLlon by
reLalnlng calves beyond weanlng Lhus carrylng Lhem lnLo Lhe nexL phase
of preparaLlon for Lhe markeL place 8ackgroundlng grazlng and feedlng
Lhrough a feedloL are all reLalned ownershlp sLraLegles
Specu|at|on Lhe aLLempL Lo anLlclpaLe commodlLy prlce changes and Lo
proflL Lhrough Lhe purchase or sale of elLher Lhe commodlLy fuLures
conLracL or Lhe physlcal commodlLy
Specu|ator a nonhedglng Lrader one who assumes rlsk poslLlons wlLh
Lhe hope of maklng a proflL raLher Lhan hedglng fuLure cash purchases or
sales
1echn|ca| ana|ys|s an analysls of Lhe markeL based on Lechnlcal aspecLs
such as prlce charL formaLlon volume and open lnLeresL