Commodity futures contracts: glossary of terms

Keywords and phrases used to describe commodity futures markets

ArbitrageThe practice of exploiting price differentials between related assets across different markets to make risk-free profits.
Cost of carryThe cost of holding a position in a futures contract, including interest, storage, and other expenses.
Delivery dateThe date the futures contract’s physical delivery or financial settlement occurs.
ExchangeAn entity that acts as an intermediary in futures trading, ensuring contract performance, managing margin deposits, and reducing counterparty risks.
Expiration dateThe final date when a futures contract must be settled by physical delivery, offsetting, or rolled over to a subsequent contract.
Futures contractA standardized, legally binding agreement to buy or sell a specific asset at a predetermined price on a future date.
HedgingA risk management strategy producers and consumers use to offset price fluctuations in the underlying asset through futures contracts.
Long positionA futures position where the trader agrees to buy the underlying asset at a future date, anticipating its price to rise.
MarginA deposit required by exchanges from traders to cover potential losses on futures positions. The initial margin is the amount needed to open a position, while the maintenance margin ensures position viability.
Market makerA trader or firm that provides liquidity by buying and selling assets at quoted prices in futures markets.
Open interestThe total number of outstanding futures contracts for a specific asset that have not been closed or delivered.
Regulatory oversightSupervision and enforcement of rules by regulatory bodies to ensure fair trading practices, market integrity, and investor protection in futures markets.
Short positionA futures position where the trader agrees to sell the underlying asset at a future date, expecting its price to fall.
SpeculatorsMarket participants seeking profits from price movements in futures contracts without the intention of physically delivering the asset.
Spot priceThe current market price of the underlying asset for immediate delivery or settlement.
VolumeVolume is the total number of contracts traded on a particular futures market or contract during a specified period, usually a trading session or day.
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