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Basis Swap
A swap whose cash settlement price is calculated based on the basis between a futures contract and the spot price of the underlying commodity or a closely related commodity on a specified date.
Artificial Price
A futures price that has been affected by a manipulation and is thus higher or lower than it would have been if it reflected the forces of supply and demand.
Basis Grade
The grade of a commodity used as the standard or par grade of a futures contract.
Exercise Price (Strike Price)
The price, specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to buyer.
Security
Generally, a transferable instrument representing an ownership interest in a corporation (equity security or stock) or the debt of a corporation, municipality, or sovereign. Other forms of debt such as mortgages can be converted into securities.
Amortization
Liquidation of a debt through installment payments.
Allowances
The discounts (premiums) allowed for grades or locations of a commodity lower (higher) than the par (or basis) grade or location specified in the futures contract. See Differentials.
Buy (or Sell) On Opening
To buy (or sell) at the beginning of a trading session within the open price range.
Backwardation
Market situation in which futures prices are progressively lower in the distant delivery months. For instance, if the gold quotation for January is $360.00 per ounce and that for June is $355.00 per ounce, the backwardation for five months against January is $5.00 per ounce. (Backwardation is the opposite of contango ). See Inverted Market.
Arbitrage
A strategy involving the simultaneous purchase and sale of identical or equivalent commodity futures contracts or other instruments across two or more markets in order to benefit from a discrepancy in their price relationship. In a theoretical efficient market, there is a lack of opportunity for profitable arbitrage. See Spread.
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