Glossary of Commodity Market Terms (N-Z)

Nearby (Delivery) Month : The futures contract month closest to expiration. For example, in a five-month futures contract, the first and the second month are considered to be nearby months. It is the opposite of deferred (delivery) month. It is also referred to as spot month.

Offer : An offer is when one party expresses interest in selling a commodity or a contract at a given price. It is the opposite of bid.

Offset : Taking a second futures position opposite to the initial or opening position. Investors offset commodity futures contracts to avoid actually delivering physical commodities.

Open Interest : The total number of futures contracts of a commodity that have not yet been offset or fulfilled by delivery. Technical analysts use this concept to make certain predictions about the market.

Position : It is a market commitment made by the buyer or seller of a futures contract. A buyer of a futures contract is said to have a long position. Conversely, a seller of futures contracts is said to have a short position.

Price Discovery : Price discovery is the process of determining the price for a specific commodity. These prices are dependent upon market conditions affecting supply and demand.

Price Limit : Commodity exchanges set limits on the maximum price rise and fall for a contract in one trading session. These are known as price limits. This rise or fall is calculated over the previous day’s settlement price.

Settlement Close Out Price : The last price paid for a commodity on any trading day. The exchange determines a firm's net gains or losses, margin requirements, and the next day's price limits, based on each contract’s settlement price. In some cases there is a closing range of prices. Here the settlement close out price is determined by averaging those prices.

Short Position : A position where the investor sells futures contracts or plans to purchase a cash commodity.

Short Hedge : Selling futures contracts to protect against a possible fall in prices of commodities that will be sold in the future. Producers of commodities can use this method to lock in a selling price.

Speculator : A speculator is a person who assumes a high level of risk when trading in commodities or commodity futures. This high risk gives him the possibility to earn a higher-than-average profit.

Spot : Usually refers to a cash market price for a physical commodity that is available for immediate delivery.

Spread : The price difference between two related markets or commodities or between contracts of different maturities of same commodity.

Volatility : It is the rate at which the price of an asset increases or decreases over a given period of time. Volatility measures the risk of an asset.

Volume : The number of purchases or sales of a commodity futures contract made during a specified period of time. It is measured in terms of the total transactions for one trading day.

Warehouse Receipt : This is the document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage. It is commonly used as the instrument of transfer of ownership in both cash and futures transactions.

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