Securities Terms and Definitions

Equity As used on a trading account statement, refers to the residual dollar value of a futures or option trading account, assuming it was liquidated at current prices. Hedge Exemption An exemption from speculative position limits for bona fide hedgers and certain other persons who meet the requirements of exchange and CFTC rules. 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. Call An option contract giving the buyer the right but not the obligation to purchase a commodity or other asset or to enter into a long futures position Buy (or Sell) On Close To buy (or sell) at the end of the trading session within the closing price range. Basis Grade The grade of a commodity used as the standard or par grade of a futures contract. Systemic Risk The risk that a default by one market participant will have repercussions on other participants due to the interlocking nature of financial markets. For example, Customer A’s default in X market may affect Intermediary B’s ability to fulfill its obligations in Markets X, Y, and Z. Margin The amount of money or collateral deposited by a customer with his broker, by a broker with a clearing member, or by a clearing member with a clearing organization. The margin is not partial payment on a purchase. 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. Bear Spread (1) A strategy involving the simultaneous purchase and sale of options of the same class and expiration date, but different strike prices. In a bear spread, the option that is purchased has a lower delta than the option that is bought. For example, in a call bear spread, the purchased option has a higher exercise price than the option that is sold. Also called Bear Vertical Spread. (2) The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation does not materialize.

Contact our Vermont Securities Lawyer Now!

	Did You Know?
	Settlement Price: The daily price at which the clearing organization clears all trades Settlement Price: The daily price at which the clearing organization clears all trades and settles all accounts between clearing members of each contract month. Settlement prices are used to determine both margin calls and invoice prices for deliveries. The term also refers to a price established by the exchange to even up positions which may not be able to be liquidated in regular trading.