Acreage allotment: An individual farm’s share, based on its previous production, of the national acreage needed to produce sufficient supplies of a particular crop.

Acreage Reduction Program (ARP): A voluntary, unpaid land retirement system in which farmers reduce their planted acreage from an historical "base-acreage" level. Usually required for participation in other agricultural programs. This program expired with passage of the 1996 Farm Bill.

Arbitrage : The simultaneous purchase and sale of identical or equivalent financial instruments or commodity futures in order to benefit from a discrepancy in their price relationship.

Ask: Also called "offer". Indicates a willingness to sell a futures contract at a given price.

BASIS (cash grain): The difference between a cash grain price and a futures price. More exactly, basis is cash minus futures (i.e., the cash price of grain at a specific point minus the price of an appropriate futures contract).

BASIS CONTRACT: A contract initially unpriced, but with a fixed differential versus a futures contract set in the contract.

NB: The glossary is alphabetical but not necessarily in a sorted order. Some words are defined as per their usage in the markets. We are not responsible for any mis-interpretation or improperly defined words as this is just a compilation of major terms produced for orientation purpose.
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Bear : One who believes prices will decrease. :

Bear Market : A market in which prices are declining.

BEAR MARKET (BEAR/BEARISH): A market in which prices are declining. A market participant who believes prices will move lower is called a "bear". A news item is considered bearish if it is expected to produce lower prices.

BEAR SPREAD: To sell a nearby instrument or asset and buy an equal quantity of a more deferred period (e.g., to sell January and buy March soybean futures is a "bear spread").

BID: An "offer" to buy, at a specified price or basis. The grain trade, among others, commonly refers to a proposal to buy as a bid and a proposal to sell as an offer.  
The price that the market participants are willing to pay.

BROKER: Agent who gets a buyer and seller together by executing their orders. Much like a real estate broker, a grain broker does not acquire title or assume risk. He simply charges a fee for executing an order.

BULL MARKET (BULL/BULLISH): A market in which prices are rising. A participant in futures who believes prices will move higher is called a "bull". A news item is considered bullish if it is expected to bring on higher prices.

BULL SPREAD: To buy a nearby instrument or commodity and sell an equal amount of a more deferred period (e.g., to "buy March/sell May" is an example of a corn futures "bull spread").

BUY IN: To purchase grain commercially in order to fill an existing sales commitment. A buy-in can also be made by the buyer in the original trade for the account of the seller in the original trade, if the seller has failed to fulfill the contract commitment.

Back Months : The futures or options on futures months being traded that are furthest from expiration.

Bull : One who expects prices to rise.

Bull Market : A market in which prices are rising.

Buy On Close : To buy at the end of a trading session at a price within the closing range.

Buy On Opening : To buy at the beginning of a trading session at a price within the opening range.

Bilateral agreement: A two-country agreement for the exchange of a given volume of specific products during a specified period of time.

Biotechnology: The use of microorganisms–plant cells, animal cells or parts of cells, such as enzymes–to produce products or carry out processes.

Bio-solids: Organic waste by-products from ag production and municipal sewage treatment plants that are spread on farm fields as a natural fertilizer or soil amendment.

BUSHEL:

CALL: An option that gives the buyer the right to buy something at a specified price (the strike price) for a fixed length of time. In the grain trade, calls usually refer to options on futures.

CARRYING CHARGES (reference values): The amount by which shipments in the future exceed values for more nearby shipment slots. What the market is paying for grain storage. Carrying charges can exist in the futures (spreads) and in the basis (cash grain carries being the sum of the two.) Often shortened to "carry."

CARRYOVER: Grain and oilseed stocks not consumed during the marketing year and "carried over" into the next marketing year. The inventory of a farm commodity not yet used at the end of a marketing year. Marketing years generally start at the beginning of the new harvest for a commodity.

CASH COMMODITY: The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also referred to as actuals.

CASH MARKET: A place where people buy and sell the actual commodities.

CHARTING: The use of graphs and charts in the technical analysis of futures markets to plot price movements, volume, open interest or other statistical indicators of price movement.

Checkoff programs: Research and promotion programs authorized by law and financed by assessments. The programs are paid for by specified industry members (producers and handlers).

CLOSE (the): The period at the end of the trading session, officially designated by the exchange, during which all transactions are considered made "at the close"

COMMISSION: A fee charged by a broker to a customer for performance of a specific duty, such as the buying or selling of futures contracts.

CONFIRMATION OF TRADE: In the grain, feed and processing industry, a "confirmation of trade" generally is deemed to be a writing confirming an oral contract already made by the parties. The NGFA Trade Rules set forth specific requirements for such confirmations in NGFA Grain Trade Rule 6, NGFA Feed Trade Rule 2 and NGFA Barge Freight Trading Rule 2.

CONTRACT: In the grain, feed and processing industry, an agreement between buyer and seller that a court or arbitration committee will enforce. Contracts may be formed orally, but state-enacted versions of the Uniform Commercial Code (UCC) generally require that contracts must be evidenced by some writing if involving the sale or purchase of goods worth $500 or more. Such writing can either be an agreement signed by both parties or a confirmation evidencing the parties' agreement. Under the UCC, a written confirmation(s) exchanged between "merchants" is deemed evidence of the formation of a contract between the parties. Likewise, the UCC provides that conduct by both parties which recognizes the existence of a contract can be sufficient to establish a contract for sale of goods in some cases.

CONTRACT MONTH: The month in which delivery is to be made in accordance with a futures contract.

COVERED CALL: Selling a call against your crop in an amount not to exceed your ownership of physical inventory.

Cabinet Trade or cab A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick.

Call : An option to buy a commodity, security or futures contract at a specified price any time between now and the expiration date of the option contract.

Cash Commodity : The actual physical commodity as distinguished from a futures commodity.

Close, The : The period at the end of the trading session.

Closing Range (or Range) : The high and low prices, or bids and offers, recorded during the period designated as the official close.

Commission (or Round Turn) : The one-time fee charged by a broker to a customer when a futures or options on futures position is liquidated either by offset or delivery.

CFTC : CFTC - The Commodity Futures Trading Commission as created by the Commodity Futures Trading Commission Act of 1974. This government agency currently regulates the US commodity futures industry.

Contract : Unit of trading for a financial or commodity future. Also, actual bilateral agreement between the parties (buyer and seller) of a futures or options on futures transaction as defined by an exchange.

Contract Month : The month in which futures contracts may be satisfied by making or accepting delivery. (See delivery month.)

Day Order : An order that is placed for execution during only one trading session. If the order cannot be executed that day, it is automatically cancelled.

Day Trading : Refers to establishing and liquidating the same position or positions within one day's trading, thus ending the day with open position in the market.

DEFAULT: The failure to perform on a futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take delivery.

DEFERRED PAYMENT: A payment term in which the buyer and seller agree to defer payment. (Note: Deferred payment is not the same as Delayed Price.)

DELAYED PRICE: (Also known as Deferred Price, No Price Established - 'NPE') An unpriced grain trade in which title passes upon delivery, but neither the basis nor a futures price is set. The seller has the right to price later, at the price in a specified local market at that time, less service charges (if any). (Usually used as a substitute for storage.)

DEMURRAGE: Penalty charged when freight cars or trucks are held for loading, unloading, or shipping instructions beyond the allowable time.

DERIVATIVES: Any financial instrument whose value is derived from, or based on, the value of another asset, instrument, or commodity. (E.g., corn futures are actually a derivative; their value is based on the value of cash corn in Chicago. "Swaps" are also derivatives.)

DISAPPEARANCE: Domestic use and export of a commodity, often used interchangeably with distribution, although the meanings are not identical.

Deferred : Another term for "back months."

Delivery : The tender and receipt of an actual commodity or financial instrument, or cash in settlement of a futures contract.

EXERCISE: To invoke the rights of a long option position to take a futures position.

EXERCISE PRICE: The price level of the futures contract that will result if an option is exercised.

EXERCISE VALUE: The amount of immediate potential gain if an option owner exercises an option into a futures position at the option's strike price. (E.g., "I own a Dec 2.60 call, and Dec futures closed today at $2.83. That call has 23 cents of exercise value, but the total option premium is 28 cents.")

EXPIRATION DATE: Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contract.

EXTRINSIC VALUE: (Also known as "time value".) That part of any option premium that is not exercise value. (E.g., "The Dec $2.80 call closed today at 18 cents; 12 cents was exercise value, so its extrinsic value is 6 cents/bu.")

Exercise Or Strike Price: The price at which the holder (buyer) may purchase or sell the underlying futures contract upon the exercise of an option.

Expiration Date: The last day that an option may be exercised into the underlying futures contract. Also, the last day of trading for a futures contract.

FIRST NOTICE DAY: The first day on which notice of intent to deliver a commodity in fulfillment of an expiring futures contract can be given to the clearinghouse by a seller and assigned by the clearinghouse to a buyer. Varies from contract to contract.

F.O.B.: Free on Board. The expression indicates that the seller assumes all responsibilities and costs up to the specific point or stage of delivery named, including transportation, packing, insuring, etc.

FORWARD CONTRACT: A cash grain contract calling for shipment in the future. Used often to refer to purchases from farmers. Some farmers make it a practice to forward contract a portion of their production at planting time.

FULL CARRY (delivery markets): A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage. The amount by which a deferred futures month must trade over a nearby month to make it economically feasible to take delivery via the nearby contract, hold the grain, and deliver against the deferred. (E.g., "If storage in Chicago is 4.5 cents per month and interest costs 3 cents per month, full carry between the December and March corn futures is around 22 ½ cents.")

FUTURES CONTRACT: An agreement to purchase or sell a commodity for delivery in the future: (1) at a price that is determined at initiation of the contract; (2) which obligates each party to the contract to fulfill the contract at the specified price; (3) which is used to assume or shift price risk; and (4) which may be satisfied by delivery or offset.

FUTURES ONLY: Cash market forward contracts whereby the futures price level is fixed, but the basis is not. See also "Hedge to Arrive."

Floor Broker : An exchange member who is paid a fee for executing orders for Clearing Members or their customers. A Floor Broker executing orders must be licensed by the CFTC.

Floor Trader : An exchange member who generally trades only for his/her own account or for an account controlled by him/her. Also referred to as a "local."

Futures : A Futures Contract is an agreement between a buyer and a seller to receive and deliver on a future date a specified amount of a product at an agreed price.

Futures Commission Merchant : A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection with solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades or contracts. The FCM must be licensed by the CFTC.

Federal crop insurance: A voluntary risk management tool, available to farmers since the 1930s, that protects them from the economic effects of unavoidable adverse natural events. In 1980, federal crop insurance was expanded to include more crops and to cover multiple hazards. Administrative costs are appropriated by Congress, and premium costs are federally subsidized.

Findley Payment: A portion of the deficiency payment, usually paid at the end of the marketing year. The payment is intended to compensate producers for any loss of income if the Secretary of Agriculture invokes his authority to lower loan rates in order to make U.S. prices competitive in the world market.

General Agreement on Tariffs and Trade (GATT): An agreement negotiated in 1947 among 23 countries, including the U.S., to increase international trade by reducing tariffs and other trade barriers. This multilateral agreement provides a code of conduct for international commerce. GATT also provides a framework for periodic multilateral negotiations on trade liberalization and expansion.

Hedge : Hedgers are individuals and firms that make purchases and sales in the futures market solely for the purpose of establishing a known price level—weeks or months in advance—for something they later intend to buy or sell in the cash market.

HEDGE: A transaction intended to reduce risk. Often refers to taking a futures position that is equal and opposite from one's position in the cash market.

HEDGE(D) TO ARRIVE: Cash market forward contracts in which the futures price has been fixed in the contract, but not the basis. Therefore the final cash price is not fixed until a later point in time. See also "Futures Only."

Holder : One who purchases an option.

IN THE MONEY: An option with exercise value (e.g., a call at $3.00 us "in the money" $.50 if the futures market is trading at $3.50).

INTRINSIC VALUE: The amount by which an option is in the money.

INVERSE: A market in which nearby values are higher than deferred ones. Can refer to basis, futures, freight, and futures spreads. Also "inverted."

Import quota: The maximum quantity or value of a commodity allowed to enter a country during a specific period of time.

Initial Margin (Also referred to as Initial Performance Bond) : The funds required when a futures position (or a short options on futures position) is opened.

International trade barriers: Regulations used by governments to restrict imports from, and exports to, other countries. Examples are tariffs, embargoes, import quotas and unnecessary sanitary restrictions.

LIEN: A security interest used to secure a debt. In grain, a bank may take a lien on a growing crop (thus, a crop lien) to secure a loan to the grower.

LAST TRADING DAY: The last day on which trading may occur in a given futures or option.

LEVERAGE: The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.

LONG: One who has bought futures contracts or owns a cash commodity.

LONG HEDGE: Buying futures contracts to protect against possible increasing prices of commodities.

Loan rate: The price per unit (bushel, bale, pound) at which the government will provide loans to farmers and processors to enable them to hold their commodities for later sale. The 1996 Farm Bill established minimum loan rates for wheat, feed grains, dairy products and rice. Also set soybean and cotton rates by a formula reflecting an average of previous years' market prices.

Limit Order : An order given to a broker by a customer that specifies a price; the order can be executed only if the market reaches or betters that price.

Limit Price : The maximum amount the contract price can change, up or down, during one trading session, as stipulated by Exchange rules.

Liquidation : Any transaction that offsets or closes out a long or short futures position.

Long : One who has bought a futures or options on futures contract to establish a market position through an offsetting sale; the opposite of Short.

Long Hedge : The purchase of a futures contract in anticipation of an actual purchase in the cash market. Used by processors or exporters as protection against and advance in the cash price.

MARGINS (futures): An amount of money deposited by both buyers and sellers of futures contracts and by sellers of options contracts to ensure performance on the terms of the contract. In futures trading, there are two kinds of margins: initial margin and variation (maintenance) margin. Initial margin is the "good faith" margin deposited when a trade is made, and variation margin reflects the day to day changes in price.

MARGIN CALL: A call from a clearinghouse to a clearing member, or from a broker or firm to a customer, to bring margin deposits up to a required minimum level.

Maintenance Margin (also known as a Maintenance Performance Bond) A sum, usually smaller than—but part of—the initial margin, which must be maintained on deposit in the customer's account at all times. If a customer's equity in any futures position drops to, or under, the maintenance margin level, a "margin call" is issued for the amount of money required to restore the customer's equity in the account to the initial margin level.

Margin (also known as Performance Bond) : Funds that must be deposited as a margin by a customer with his or her broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The margin helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole.

Margin Call (also known as Performance Bond Call)

A demand for additional funds because of adverse price movement.

Mark-To-Market : The daily adjustment of margin accounts to reflect profits and losses.

Market Order : An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Minimum Price Fluctuation :Smallest increment of price movement possible in trading a given contract, often referred to as a tick.

M.I.T. : Market-If-Touched. A price order that automatically becomes a market order if the price is reached.

METRIC TON: Equal to 2204.6 pounds.

MINIMUM PRICE (CONTRACT) - (Also MPC's): A cash grain contract in which the buyer agrees to set a price floor but no ceiling. The buyer uses options to offset the risk. MPC's are popular as a way for farmers to sell cash grain, yet retain a chance for higher prices.

Marketing loan: A variation on the standard non-recourse commodity loan. The mechanism allows producers to repay their loans at the lower of the prevailing world market price or the original loan rate.

Marketing quota: Under certain agricultural programs, the quantity of a commodity that will provide adequate and normal market supplies. When marketing quotas are in effect (only after approval by at least two-thirds of the eligible producers voting in a referendum), growers who produce in excess of their farm acreage allotments are subject to marketing penalties and are ineligible for government price support loans. Quotas are used for domestically-consumed peanuts. For certain tobacco varieties, a poundagelimitation is applicable as well as acreage allotments.

Market transition payments: Seven-year contractual agreements between farmers and the federal government whereby farmers receive payments based on past production of program crops. Sign-up for these contracts was offered to all program participants on a one-time basis in 1996 as part of the 1996 Farm Bill.

Multilateral agreement: An agreement or program involving three or more countries . . . such as the General Agreement on Tariffs and Trade, and North American Free Trade Agreement.

NEARBY DELIVERY MONTH: The futures contract month closest to expiration.

NO PRICE ESTABLISHED (NPE): A contract between producer and warehouse which transfers title to the warehouse, with a sales price to be established later. The seller relinquishes ownership of the grain, and becomes a general creditor of the warehouse until paid.

Net farm income: The money and non-money income farm operators receive from farming as a return for labor, investment and management after production expenses have been paid.

Nearby : The nearest active trading month of a futures or options on futures contract. Also referred to as "lead month."

Nonrecourse loan: Price support loan to farmers to enable them to hold their crops for later sale, usually within the marketing year. The loan is nonrecourse in that farmers can forfeit without penalty the loan collateral (the commodity) to the government as settlement of the loan.

Non-point source pollution: Pollution that cannot be detected from a specific point or any specific land use. It’s usually pollutants that are on the ground and get washed into lakes, streams and ponds when it rains.

Normal crop acreage: The acreage on a farm normally devoted to a group of designated crops. When a set-aside program is in effect, a farm's total planted acreage plus the set-aside acres cannot exceed the normal crop acreage if the farmer wants to participate in the commodity loan program or receive deficiency payments.

Offer : Also called "ask". Indicates a willingness to sell a futures contract at a given price.

Offset : Selling if one has bought, or buying if one has sold, a futures or options on futures contract.

Open Interest : Total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery. An indicator of the depth or liquidity of a market (the ability to buy or sell at or near a given price) and of the use of a market for risk- and/or asset-management.

Open Order : An order to a broker that is good until it is canceled or executed.

Opening, The : The period at the beginning of the trading session during which all transactions are considered made or first transactions were completed.

Opening Price (Or Range) : The range of prices at which the first bids and offers were made or first transactions were completed.

Option : A contract giving the holder the right, but not the obligation, hence, "option," to buy or sell a futures contract in a given commodity at a specified price at any time between now and the expiration of the option contract.

Out-Trades :A situation that results when there is some confusion or error on a trade. A difference in pricing, with both traders thinking they were buying, for example, is a reason why an out-trade may occur.

OFFSET: Taking a second futures position opposite to the initial or opening position, "close out". Approximately 99 percent of all market participants will close their futures positions by offsetting them rather than actually taking or making delivery of the underlying commodity.

OPEN (the): The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the open".

OPEN INTEREST: The sum of all long or short futures contracts in one delivery month or one market that has been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery.

OPEN OUTCRY: A method of public auction for making bids and offers in the trading pits of commodity exchanges.

OPENING RANGE: The range of prices at which buy and sell transactions took place during the opening of the market.

OPTIONS: Contracts that give the buyer the right, but not the obligation, to (1) buy a commodity or futures contract, or (2) sell a commodity or futures contract. The right to buy a commodity is a CALL; the right to sell a commodity is a

PUT. Options are traded based on some predetermined price (strike price), for a fixed period of time. Still used by some to incorrectly refer to the futures contract itself.

Position : An interest in the market, either long or short, in the form of open contracts.

Premium : 1.) The excess of one futures contract price over that of another, or over the cash market price.

2.) The amount agreed upon between the purchaser and seller for the purchase or sale of a futures option—purchasers pay the premium and sellers (writers) receive the premium.

Put : An option to sell a commodity, security, or futures contract at a specified price at any time between now and the expiration of the option contract.

OPTION PREMIUM: The "price" a buyer pays for an option. Premiums are arrived at through open competition between buyers and sellers on the trading floor of the exchange.

OUT OF CONTRACT: A buyer or seller who has not fulfilled contractual obligations. A shipment that does not meet the contract specification.

OUT OF MONEY: An option whose strike price is away from the current market price and that has no exercise value (e.g., an option to sell at $2.20 is "out of the money" if the market is at $2.34).

OVERBOUGHT: A technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors.

OVERSOLD: A technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors.

Parity price:  Price per bushel, pound or bale that would be necessary today to buy the same quantity of goods (from a standard list) that a bushel would have bought in the 1910-1914 base period at the price then prevailing.

Payment limitation: A limitation set by law on the amount of money any one individual may receive in farm program payments, such as market transition payments and disaster payments, each year under the USDA programs. The limitation does not include the value of any government price-support loans received.

Permanent legislation: The statutory legislation upon which many agricultural programs are based . . . for the major commodities, principally the Agricultural Adjustment Act of 1938 and the Agricultural Adjustment Act of 1949. Although these laws are frequently amended for a given number of years, they would once again become law if current amendments, such as the 1996 Farm Bill, were to lapse or new legislation not be enacted.

Point-source pollution:  Pollution that can be detected from a specific point, such as an outlet pipe emptying into a river from a wastewater treatment plant or a factory.

Program yield: A term designating the average historical yield established for a particular farm or area. Program production would be the program acreage planted in a commodity multiplied by the program yield.

Public Law 480: Enacted in 1954 to expand foreign markets for U.S. agricultural products, combat hunger and encourage economic development in developing countries. Makes U.S. commodities available through low-interest, long-term credit under Title I of the Act and as donations for famine or other emergency relief under Title II. Under Title I, the recipient country agrees to undertake agricultural development projects to improve its own food production or distribution. Title III authorizes "food for development" projects.

POSITION: A market commitment, either long or short, in the market.

POSITION REPORT: A report for management, the purpose of which is to provide information on the company's exposure to price and basis risks.

POSITIVE (basis): A basis that is greater than zero (e.g., the local soybean processor is bidding $6.10, and futures closed at $6.05, the basis is +5).

PREMIUM (options): The price or cost of an option.

PRICE RISK: Risk associated with possible changes in prices, usually futures prices as opposed to basis risk.

PROTEIN PREMIUM: Indicates the extra price obtainable due to higher protein content than originally contracted. For example, a contract price could be based on 11 ½ % protein wheat with a premium of 2 cents per bushel for each ¼ percent protein above the 11.5 base.PUT: An option giving the buyer the right to sell futures at a specified price (strike price) for a specified time.

Rally : An upward movement of prices following a decline; the opposite of a reaction.

Range : The high and low prices or high and low bids and offers, recorded during a specified time.

Reaction : A decline in prices following an advance. The opposite of rally.

Registered Representative : A person employed by, and soliciting business for, a commission house or a Futures Commission Merchant.

Round-Turn : Procedure by which a long or short position is offset by an opposite transaction or by accepting or making delivery of the actual financial instrument or physical commodity.

ROLL: To move a cash grain or futures position into a different (usually more deferred) time slot by simultaneously buying one futures month and selling another.

ROUND TURN: A completed futures transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

runoff: Rainfall or snow melt water that moves across agricultural or nonagricultural land into a nearby lake, stream or river. This water may contain sediment or otherpollutants when it reaches the water body.

Scalp : To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, usually within the same day, hour or even just a few minutes.

Settlement Price : A figure determined by the closing range that is used to calculate gains and losses in futures market accounts. Settlement prices are used to determine gains, losses, margin calls, and invoice prices for deliveries.

Short : One who has sold a futures contract to establish a market position and who has not yet closed out this position through an offsetting purchase; the opposite of long.

Short Hedge : The sale of a futures contract in anticipation of a later cash market sale. Used to eliminate or lessen the possible decline in value of ownership of an approximately equal amount of the cash financial instrument or physical commodity.

Speculator : One who attempts to anticipate price changes and, through buying and selling futures contracts, aims to make profits; does not use the futures market in connection with the production, processing, marketing or handling of a product. The speculator has no interest in making or taking delivery.

Spread : The simultaneous purchase and sale of futures contracts for the same commodity or instrument for delivery in different months, or in different but related markets. A spreader is not concerned with the direction in which the market moves, but only with the difference between the prices of each contract.

Stop Order (Or Stop) : An order to buy or sell at the market when and if a specified price is reached.

SELL OUT: An actual sale of grain of like kind and quantity on the open market, or to establish a fair market value on unshipped grain. Used to determine market value and assess damages due to a buyer's failure to perform on a contract. A trade made by a seller for the account of a buyer who has failed to provide billing on a shipment. (Reference NGFA Grain Trade Rule 13.)

SETTLEMENT PRICE: The daily price at which the clearinghouse settles all accounts between clearing members for 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 clearing organization to calculate account values and determine margins for those positions still held and not yet liquidated.

SHORT: One who has sold futures contracts or the cash commodity.

SHORT HEDGE: Selling futures contracts to protect against possible declining prices of commodities.

SPECULATOR: A market participant who has absolutely no interest in owning or selling a physical commodity, but makes money taking on risk - buying and selling futures contracts in hopes of making a profit.

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

SPREAD: The difference between two futures prices. Spreads may be intercommodity (e.g., corn vs. wheat) or time-related (e.g., March vs. May corn). When used as a verb, "to spread" means to buy one futures month and simultaneously sell another.

STOP ORDER: An order that becomes a market order when the commodity reaches a particular price level. A sell stop is placed below the market, a buy stop is place above the market.

STRIKE PRICE: The exercise price of an option. The price at which the rights of an option can be exercised into a futures contract. (E.g., a Dec $2.40 call has a $2.40 strike price. You can buy futures at $2.40 if you want to exercise the call.)

Set-aside: This program expired with passage of the 1996 Farm Bill. The program limited production by restricting the use of land.

Tariff: A system of duties imposed by government on both imported and exported goods. Sometimes used as a means of raising revenue.

TARGET PRICE (firm offer): A type of cash contract in which the seller agrees to sell grain (and the buyer agrees to buy grain) at a specified price that is higher than the current price. Also refers to the desired selling price. Often called a "firm offer" when it involves a producer selling to a country elevator. No commitment to deliver exists unless the target price is reached. No correlation to now-obsolete USDA term "TARGET PRICE."

Most target price programs expired with passage of the 1996 Farm Bill. This was a commodity price goal established by law for wheat, feed grains, rice, and cotton. If the market price fell below this level, a direct government payment was made to producers for the difference between the target and the price support loan level or market price, whichever was higher.

Tick : Refers to a change in price, either up or down.

Trend : The general direction of the market.

TENDER: As a verb, tender announces the intention of delivering a notice or an actual commodity. As a noun, tender normally denotes a notice of an intent to buy. The tender usually spells out in detail quantities to be purchased, desired quality, time of shipment, country of origin, and all inspection, weighing, and payment terms. Overseas buyers usually issue tenders to ensure the maximum competition for a given piece of business.

TEXAS HEDGE: Being long or short futures in an amount more than you physically own.

TIME DECAY: The decline in the "time value" portion of any option's premium over time. This assumes the underlying futures price (and market volatility) remains constant. Time decay is greatest in the latter stages of an option's life, gaining momentum especially in the final weeks before expiration.

TIME VALUE: (Also known as "extrinsic" value.) That part of any option premium that is not immediate exercise value. (E.g., "Dec futures closed today at $2.92. The Dec $2.80 call closed at 18 cents; 12 cents was exercise value, so its time value is 6 cents/bu.")

TRADE OPTIONS: Cash market options on the physical commodity, as opposed to exchange-traded options on futures. Trade options are currently banned in agricultural commodities (as of April 1996) under federal law, but are legal in certain other commodities.

UNDERLYING FUTURES CONTRACT: The specific futures contract that may be bought or sold by the exercise of an option.

VOLATILITY: Generally, the degree of price change in a market. In options trading, refers to a specific measurement of past (historic volatility) or future (implied volatility) price movement.

Volume : The number of transactions in a futures or options on futures contract made during a specified period of time.

Writer : An individual who sells an option.