Glossary of Commodity Market Terms [D-M]

Daily Trading Limit - The maximum price range set by the exchange each day for a contract.

Deferred (Delivery) Month - The more distant month(s) in which futures trading is taking place, as distinguished from the nearby (delivery) month.

Day Traders - Speculators who take positions in futures and liquidate them prior to the close of the same trading day.

Deliverable Grades - The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the standard called for by the exchange. Also referred to as contract grades.

Delivery - The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.

Delivery Month - A specific month in which delivery may take place under the terms of a futures contract. Also referred to as contract month.

Equilibrium Price - The market price at which the quantity supplied of a commodity equals the quantity demanded.

Expiration Date - Options on futures generally expire on a specific date during the month preceding the futures contract.

Full Carrying Charge Market - A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage.

Fundamental Analysis - A method of anticipating future price movement using supply and demand information.

Futures Contract - A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange-trading floor.

Futures Exchange - A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.

Hedger - An individual or company owning or planning to own a cash commodity such as gold, soybeans, silver, etc. and concerned that the cost of the commodity may change. While holding it a hedger achieves protection against changing cash prices by purchasing (selling) futures contracts of the same or similar commodity.

Hedging - The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their businesses from adverse price changes. See Selling (Short) Hedge and Purchasing (Long) Hedge.

High - The highest price of the day for a particular futures contract.

Initial Margin - The amount a futures market participant must deposit into his margin account at the time he places an order to buy (sell) a futures contract.

Inverted Market - A futures market in which the more distant the contract month, the lower is the futures price.

Liquidate - Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract. See Offset.

Long - One who has bought futures contracts or owns a cash commodity.

Long Hedge - Buying futures contracts to protect against a possible price increase of cash commodities that will be purchased in the future. At the time the cash commodities are bought, selling an equal number and type of futures contracts as those that were initially purchased closes the open futures position.

Low - The lowest price of the day for a particular futures contract.

Maintenance Margin - A set minimum margin (per outstanding futures contract) that a customer must maintain in his margin account.

Margin Call - A call from a clearing house to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.

Market Order - An order to buy or sell a futures contract of a given delivery month to be filled at the best possible price and as soon as possible.

Marking-to-Market - To debit or credit on a daily basis a margin account based on the close of that day's trading session. In this way, buyers and sellers are protected against the possibility of contract default.

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

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