Glossary of Commodity Market Terms [A-C]

Arbitrage - The simultaneous purchase and sale of similar commodities in different markets to take advantage of a price discrepancy.

Arbitration - The procedure of settling disputes between members, or between members and customers.

Bar Chart - A chart that graphs the high, low, and settlement prices for a specific trading session over a given period of time.

Basis - The difference between the current cash price and the futures price of the same commodity. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.

Bear - Someone who thinks market prices will decline.

Bear Market - A period of declining market prices.

Bid - An expression indicating a desire to buy a commodity at a given price; opposite of offer.

Broker - A company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.

Brokerage Fee - See Commission Fee.

Brokerage House - See Futures Commission Merchant.

Bull - Someone who thinks market prices will rise.

Bull Market - A period of rising market prices.

Carrying Charge - For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. Also referred to as cost of carry or carry.

Cash Commodity - An actual physical commodity someone is buying or selling, e.g., soybeans, palm oil, gold, silver, etc. Also referred to as actuals.

Cash Market - A place where people buy and sell the actual commodities. Also called spot market.

Charting - The use of charts to analyze market behavior and anticipate future price movements. Those who use charting as a trading method plot such factors as high, low, and settlement prices; average price movements; volume; and open interest. Two basic price charts are bar charts and point-and-figure charts.

Clearing Corporation - An independent corporation that settles all trades made at an exchange acting as a guarantor for all trades cleared by it, reconciles all clearing member firm accounts each day to ensure that all gains have been credited and all losses have been collected, and sets and adjusts clearing member firm margins for changing market conditions.

Clearing House - An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data. Clearing houses act as third parties to all futures and options contracts acting as a buyer to every clearing member seller and a seller to every clearing member buyer.

Clearing Member - A member of an exchange clearing house. by companies. Clearing members are responsible for the financial commitments of customers that clear through their firm.

Closing Price - See Settlement Price.

Closing Range - A range of prices at which buy and sell transactions took place during the market close.

Commission Fee - A fee charged by a broker for executing a transaction. Also referred to as brokerage fee.

Commodity - An article of commerce or a product that can be used for commerce. In a narrow sense, products traded on an authorized commodity exchange. The types of commodities include agricultural products, base metals, bullion and energy products.

Convergence - A term referring to cash and futures prices tending to come together (i.e., the basis approaches zero) as the futures contract nears expiration.

Cost of Carry (or Carry) - See Carrying Charge.

In the next chapter we will learn about the glossary of commodity market terms starting from D to M.

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