Wednesday, December 19, 2018
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trading dictionary



index: a  b  c  d  e  f  g  h  i  j  k  l  m  n
o  p  q  r  s  t  u  v  w  x  y  z

 



acreage allotment - a voluntary limitation on the number of acres farmers plant to a given crop. established under the federal farm program to stimulate production of certain crops of limited supply, and curtail production of others in ample supply.

actuals - the physical or cash commodity, as distinguished from commodity futures contracts.

afloat - commodities in harbor or in transit in vessels.

aggregation - the policy under which all futures positions owned or controlled by one trader or a group of traders are combined to determine reporting status and speculative limit compliance.

amortize - an artificial method of allocating over the life of the instrument, income received or given up at maturity.

arbitrage - the simultaneous purchase of one commodity against the sale of another in order to profit from distortions from usual price relationships. variations include simultaneous purchase and sale of different delivery months of the same commodity, of the same commodity and delivery month on two different exchanges, and the purchase of one commodity against the sale of another commodity. see also spreading.

arbitrageur - one who engages in arbitrage.

arbitration - the process of settling disputes between members or between members and customers. nfa's arbitration program provides a forum for resolving futures-related disputes.

associated person (ap) - an individual who solicits orders, customers, or customer funds on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor, a commodity pool operator or a leverage transaction merchant who is registered with the commodity futures trading commission.

at-the-market - see market order.

at-the-money - an option whose strike price is equal - or approximately equal - to the current market price of the underlying futures contract.
 

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backwardation - a market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month.

bankers' acceptance - a draft or bill of exchange accepted by a bank; the accepting institution guarantees payment. used extensively in foreign trade transactions.

backwardation - a market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month.

bankers' acceptance - a draft or bill of exchange accepted by a bank; the accepting institution guarantees payment. used extensively in foreign trade transactions.bans break-even point

bans - bond anticipation notes issued by state and local governments prior to the issue of bonds to even out cash flow.

basis - the difference between a cash price at a specific location and the price of a particular futures contract.

basis point - measurement of a change in the yield of a security. one basis point equals 1/100 of one percent.

bearer security - a security which promises to pay the holder of the security on demand.

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 price.

beta - a statistic generated through regression analysis of stock returns that compares the price sensitivity of a single stock or small group of stocks in relation to a larger group or index of stocks. if, for example, the stock of at&t has a beta of 0.85 in relation to the mmi, it would be expected to fluctuate at the rate of 85 percent of the fluctuation for the index.

bid - an expression of a desire to buy a specific quantity of a commodity at a stated price.

blue-chip stock - refers to the common stock of a nationally known company with a long record of profit growth and divided payment and with a reputation for its management, product, and services. good examples of blue-chip stocks are the stocks of the companies listed in the dow jones industrial average or the major market index.

board of trade - see contract market.

bond indenture - legal statement enumerating duties of the issuer and rights of the holder.

book entry - a security transaction that is completed by a credit and debit to the seller's and buyer's books, correspondingly, for the security and is reversed for money transfer. the actual security may exist as a piece of paper in a centralized clearing house, or its existence may be limited to an entry on the computer of the treasury.

break-even point - the futures price at which a given option strategy is neither profitable nor unprofitable. for call options it is the strike price plus the premium. for put options it is the strike price minus the premium.

bearer security - a security which promises to pay the holder of the security on demand.

board of trade - see contract market.

bond indenture - legal statement enumerating duties of the issuer and rights of the holder.

book entry - a security transaction that is completed by a credit and debit to the seller's and buyer's books, correspondingly, for the security and is reversed for money transfer. the actual security may exist as a piece of paper in a centralized clearing house, or its existence may be limited to an entry on the computer of the treasury.

break-even point - the futures price at which a given option strategy is neither profitable nor unprofitable. for call options it is the strike price plus the premium. for put options it is the strike price minus the premium.

broad tape - term commonly applied to news wires carrying price and background information on securities and commodities markets, in contrast to the exchange's own price transmission wires, which use a narrow "ticker tape."

broker - (1) a person paid a fee or commission for acting as an agent in making contracts, sales or purchases; (2) when used as floor broker, it refers to the person who actually executes someone else's trading orders on the trading floor of an exchange; (3) when used as account executive, it refers to the person who deals with customers and their orders in commission-house offices. see also registered commodity representative.

brokerage - a fee charged by a broker for execution of a transaction; an amount per transaction or a percentage of the total value of the transaction; usually referred to as a commission fee.

bucket, bucketing - illegal practice of accepting orders to buy or sell without executing such orders, and the illegal use of the customer's principal - margin deposit - without disclosing the fact of such use.

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.

buyer - the purchaser of an option, either a call option or a put. the buyer may also be referred to as the option holder. option buyer's receive the right, but not the obligation, to assume a futures market position.

buy-in - (1) a purchase to cover a previous sale, often called short covering. see also cover. (2) a method of compensation for failure to deliver in the cash bond market.

buying hedge (or long hedge) - buying futures contracts to prevent against possible increased cost of commodities that will be needed in the future. see also hedging.

buy or sell on close or opening - to buy or sell at the end or the beginning of the trading session at a price within the closing or opening range of prices.

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call - (1) a period in which the price for each futures contract is established, i.e. an opening or closing call; (2) buyer's call - a purchase of a specified quantity of a specific grade of a commodity at a fixed number of points above or below a specified delivery month in futures, with the buyer being allowed a certain period of time within which to fix the price by either purchasing a futures contract for the account of the seller, or indicating to the seller when he wishes to fix price; (3) seller's call - same as the buyer's call except that the seller has the right to determine the time to fix price.

call date - date upon which issuer can exercise a call feature. see also call feature.

call feature - an option on the part of the issuer to redeem a bond issue prior to maturity at a predetermined price.

call option - an option that gives the buyer the right to purchase (go "long") the underlying futures contract at the strike price on or before the expiration date.

call price - price at which a bond issue can be called, usually at par or a slight premium.

carry - the cost of financing (borrowing to buy) a position in financial instruments.

carry (negative) - the condition in which the cost of financing (the short-term rate of interest) is more than the return on the instrument.

carry (positive) - the condition in which the cost of financing (the short-term rate of interest) is less than the return on the instrument.

carrying broker - a member of a commodity exchange, usually a clearinghouse member, through another broker or customer, chooses to clear all or some trades.

carrying charges - (1) those costs incurred in warehousing the physical commodity, generally including interest, insurance and storage; (2) full carrying charge market - a situation in the futures market when the price difference between delivery months reflects the full costs of interest, insurance and storage.

carry-over - that part of current supplies of a commodity comprised of stocks from previous production/marketing seasons.

cash (commodity) - the physical commodity as distinguished from futures contracts based upon the physical commodity; the commodity as acquired through a cash market.

cash market - a market in which transactions for purchase and sale of the physical commodity are made under whatever terms are agreeable to buyer and seller and are legal under law and the rules of the market organization, if such exist. cash market can refer to an organized, self-regulated central market, such as the cash grain sections of commodity exchanges that also have futures contract trading, or such as the central stockyards in the livestock industry. it can also refer to an over-the-counter type of market, in which buyers, sellers, and/or dealers compete in decentralized locations, possibly under rules of an organized association. in still other uses, the term may refer to other methods of purchasing and selling the physical commodity as are prevalent in the industries using that commodity. for example, an elevator company in town and neighboring farmers who feed livestock may comprise a corn grower's cash market, even though noclose organized relationship exists between them. see also spot and forward contract.

cash settlement - transaction in which securities are delivered versus federal funds on the same day the transaction is made.

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. see also technical analysis.

churning - excessive trading that results in the broker deriving a profit from commissions while disregarding the bet interests of the customer.

certified stock - stocks of a commodity that have been inspected and found to be of a quality deliverable against futures contracts, stored at the delivery points designated as regular or acceptable for delivery by the commodity exchange.

certificate of deposit (cd) - a time deposit with a specific maturity evidenced by a certificate. large-denomination cds are typically negotiable.

cheap - colloquialism implying that a security is under priced.

c.i.f. - cost, insurance and freight paid to port of destination.

class of options - all call options, or all put options, exercisable for the same underlying futures contract and which expire on the same expiration date.

clearing - the procedure through which trades are checked for accuracy after which the clearinghouse or association becomes the buyer to each seller of a futures contract, and the seller to each buyer.

clearinghouse - an agency connected with a commodity exchange through which all futures contracts are reconciled, settled, guaranteed and later either offset, or fulfilled through delivery of the commodity and through which financial settlement is made. it may be a fully chartered separate corporation, rather than a division of the exchange itself.

clearing member - a member of an exchange clearinghouse. all trades of a non-clearing member must be registered and eventually settled through a clearing member.

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." closing range cftc

closing range - a range of closely related prices at which transactions took place at the closing of the market; buying and selling orders at the closing might have been filled at any point within such a range.

closing transaction - a purchase or sale that liquidates (offsets) an existing position. that is, selling an option that was previously purchased or buying back an option which was previously sold.

cme - the chicago mercantile exchange.

commercial paper - un-secured promissory notes of corporations, 270 days or less in length, usually sold on a discount basis.
commission - fees paid to the broker for execution of an order. commission house - see futures commission merchant.

commission merchant - one who makes a trade, either for another member of the exchange or for a non-member client, but who makes the trade in his own name and becomes liable as principal to the other.

commitment - an agreement to lend money at a future date to a borrower.

commodity (as defined by cftc) - specifically enumerated agricultural commodities - all other goods and articles (except onions) - and all services, rights and interests in which contracts for future delivery are presently, or in the future may be, dealt in.

commodity credit corporation (ccc) - a wholly government-owned corporation established in 1933 to assist u.s. agriculture. the major operations are price support programs in which the ccc purchases excess supplies of commodities and provides assistance in foreign exports of agricultural commodities.

commodity exchange act - the federal act that provides for federal regulation of futures trading.

commodity exchange center (cec) - the location of five new york futures exchanges: commodity exchange, inc. (comex), the new york mercantile exchange (nymex), the new york cotton exchange, the coffee, sugar and cocoa exchange (csc), and the new york futures exchange (nyfe).

commodity futures trading commission (cftc) - a federal regulatory agency charged and empowered under the commodity futures trading commission act of 1974 with regulation of futures trading in all commodities. the commission is comprised of five commissioners, one of whom is designated as chairman, all appointed by the president subject to senate confirmation, and is independent of all cabinet departments.

commodity pool - an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts or commodity options.

commodity pool operator (cpo) - an individual or organization which operates or solicits funds for a commodity pool. generally required to be registered with the commodity futures trading commission.

commodity representative - see registered commodity representative.

commodity trading advisor (cta) - a person who, for compensation or profit, directly or indirectly advises others as the value of or advisability of buying or selling futures contracts or commodity options. providing advice indirectly includes exercising trading authority over a customer's account. registration with the commodity futures trading commission is generally required.

confirmation statement - a statement sent by a futures commission merchant to a customer when a futures or options position has been initiated. the statement shows the number of contracts bought or sold and the prices at which the contracts were bought or sold. sometimes combined with a purchase and sale statement.

contango - a market condition in which futures prices are higher in the distant delivery months.

contract - the unit of trading in commodity futures. a futures contract specifies the exact grade, amount, and month of delivery of the commodity.

contract grades - standards or grades of commodities 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 contract grade.

contract market - a board of trade designated by the commodity futures trading commission to trade futures or options contracts on a particular commodity. commonly used to mean any exchange on which futures are traded.

contract month - the month in which delivery is to be made in accordance with a futures contract.

contract unit - the actual amount of a commodity stipulated for delivery against a given futures contract.

conventional loan - mortgage loan without a government guarantee or insurance.

convergence - the tendency of futures prices to approach cash market values as contracts near expiration.

coupon - a fixed dollar amount, payable per annum, stated as a percentage of principal value, usually payable in semiannual installments.

cover - to offset a previous futures transaction with an equal and opposite transaction. "short-covering" is a purchase of futures contracts to cover an earlier sale of an equal number of the same delivery month; "liquidation" is the sale of futures contracts to offset the obligation to take delivery of an equal number of futures contracts of the same delivery month purchased earlier.

current delivery (month) - the futures contract that will come to maturity and become deliverable during the current month; also called a spot month.

current yield - the amount of money received (currently) divided by the instrument purchase price.

customer segregated funds - see segregated account.

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dated date - the date from which interest begins to accrue on a new bond issue.

day order - orders that expire at the close of a day's trading. if not filled during that trading day, they are withdrawn.

day trader - speculator who takes positions in commodities and then liquidates them prior to the close of the same trading day.

dealer - individual or firm in cash market who acts as principal in transactions. the dealer maintains an inventory of securities from which he draws upon in sales and adds to in purchases.

dealer option - a put or call on a physical commodity, not originating on or subject to the rules of an exchange, written by a firm which deals in the underlying cash commodity.

debenture - a debt instrument whose backing lies in the goodwill of the issuer rather than on any tangible assets.

default - (1) in reference to the federal farm loan program, the decision on the part of a producer of commodities not to repay the government loan, but instead to surrender his crops; (2) in futures markets, the theoretical failure of a party to a futures contract to either make or take delivery of the physical commodity as required under the contract.

deferred delivery - the more distant months in which futures trading is taking place, as distinguished from the nearby futures delivery months.

delivery - this common word has unique connotations when used in connection with futures contracts. basically, in such usage, delivery refers to the changing of ownership or control of a commodity under very specific terms and procedures established by the exchange upon which the contract is traded. typically, the commodity must be placed in an approved warehouse, on-track boxcar, or bank, and be inspected by approved personnel, after which the facility issues a warehouse receipt, shipping certificate, demand certificate, or due bill, which becomes a transferable delivery instrument. delivery of the instrument typically must be preceded by a notice of intention to deliver, commonly made two days before delivery of the instrument. after receipt of the delivery instrument. after receipt of the delivery instrument, the new owner typically can arrange with the storage facility to take possession of the physical commodity, can deliver the delivery instrument into the futures market in satisfaction of a short position, or can sell the delivery instrument to another market participant who can use it for delivery into the futures market in satisfaction of his short position for cash.

delivery notice - see notice of intention to deliver.

delivery points - those locations and facilities designated by a commodity exchange at which stocks of a commodity may be delivered in fulfillment of a contract, under procedures established by the exchange.

differentials - price differences between classes, grades and locations of different stocks of the same commodity.

disclosure document - the document that must be provided to and signed by prospective customers that describes fees, performance, etc.

disclosure statement - the statement required by the commodity futures trading commission that enumerates the risk involved in trading futures and/or options on futures.

discount - (1) a downward adjustment in price allowed for delivery of stocks of a commodity of lesser than contract grade against a futures contract; (2) sometimes used to refer to the price differences between futures of different delivery months, as in the phrase "july at a discount to may" indicating that the price of the july future is lower than that of may.

discount basis - method of quoting securities wherein the price is expressed as an annualized discount from maturity value. for example, a note which borrows $.981/1.00 today, and repays the full loan ($1.00/$1.00) in 90 days, would sell at a discount of 8 percent (360/90 x 2%). the quote would be 92(100-8).

discount bond - a bond selling below par; a "pure" discount bond is one without coupon and always sells below par. see also discount basis.

discount rate - rate of interest charged by the federal reserve to member banks that borrow from it.

discretionary account - an arrangement by which the holder of the account gives written power of attorney to another, often his broker, to make buying and selling decisions without notification to the holder; often required to as a managed account or controlled account.

disintermediation - the process wherein moneys are withdrawn from financial intermediaries (e.g., the banking system). the instigation for this process may be non-competitive returns offered by the intermediary, uncertainty or a variety of other reasons, resulting in a shrinkage in credit for the system as a whole.

dollar bonds - a type of municipal revenue bond whose price quotes are given in dollars (e.g., 91 or 105) instead of a yield basis.

dutch auction - method of sale whereby the lowest price at which the entire issue can be sold is established as the uniform price for the entire issue.

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econometrics - the application of statistical and mathematical methods in the field of economics in testing and quantifying economic theories and the solution of economic problems.

elasticity - a characteristic of commodities that describes the interaction of the supply, demand and price of the commodity; demand elasticity - a commodity is said to be elastic in demand when a price change creates an increase or decrease in consumption; supply elasticity the supply of a commodity is said to be elastic when a change in price creates a change in the production of the commodity; inelasticity of supply or demand exists in either of the reverse situations, when either supply or demand is relatively unresponsive to changes in price.

equity - the dollar value of a futures trading account if all open positions were offset at the going market price.

eurocurrency - cds, bonds, deposits, or any capital market instrument issued outside of the national boundaries of the currency in which the instrument is denominated, i.e., euro-swiss francs, euro-deutsche marks. see also eurodollars, eurodollar bonds, eurodollar cd.

eurodollar bonds - bonds issued in europe by corporate or governmental interests outside the boundary of the national capital market denominated in dollars.

eurodollar cd - dollar-denominated certificates of deposit issued by a bank outside of the united states, either a foreign bank or u.s. bank subsidiary.

eurodollars - u.s. dollars on deposit with a bank outside of the united states and, consequently, outside the jurisdiction of the united states. the bank could be either a foreign bank or a subsidiary of a u.s. bank.

exchange - see contract market.

exchange for physicals (efp) - a transaction generally used by two hedgers who want to exchange futures for cash positions. also referred to as against actuals or versus cash.

exercise - the action taken by the holder of a call option if he wishes to purchase the underlying futures contract or by the holder of a put option if he wishes to sell the underlying futures contract.

exercise price - see strike price.

expiration date - the last date on which an option may be exercised. although options expire on a specified date during the month prior to the named month, an option on a november futures contract, for example, is referred to as a november option since its exercise would lead to the creation of a november futures position.

extrinsic value - see time value.

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face value - the amount of money printed on the face of the certificate; the original dollar amount of indebtedness incurred.

fall - the situation wherein one side of a trade (buyer or seller) does not live up to the contractual obligations of the trade, i.e., failure to deliver money or failure to deliver the securities on settlement date.

federal funds - member bank's deposits held by the federal reserve; also implies immediately available funds.

federal funds rate - the rate of interest charged for the use of federal funds.

federal home loan bank - one of twelve federally chartered banks that regulates credit to its member institutions.

federal housing administration (fha) - a division of hud; it insures residential mortgage loans and sets construction standards as its principal activities.

federal national mortgage association (fnma) - a corporation created by congress to support the secondary mortgage market; it purchases and sells residential mortgages insured by the fha or guaranteed by the veterans administration.

federal reserve system - a quasi-governmental organization of 12 regional banks and a governing board of directors. the federal reserve bank has several discretionary powers over the volume of credit in the united states. the system seeks to actively manage the u.s. economy through utilization of its powers, which are limited to influencing monetary variables.

feed ratios - the variable relationships of the cost of feeding animals to market weight to sales prices, expressed as ratios, such as the hog/corn ratio. these serve as indicators of the profit return or lack of it in feeding animals to market weight.

first mortgage bonds - bonds that are collateralized by a first lien on tangible assets. in the event of a default, a first mortgage bond holder can demand liquidation of those assets in satisfaction of the debt.

first notice day - the first day on which notices of intent to deliver the commodity in fulfillment of a given month's futures contract can be made by the seller to the clearinghouse and by the clearinghouse to a buyer.

flat - having no current market position.

floor broker - an individual who executes orders on the trading floor of an exchange for any other person.

floor trader - members of an exchange who are personally present, on the trading floors of exchanges, to make trades for themselves. also referred to as locals.

flower bonds - specific government bonds that are eligible to be used as payment at par value for federal estate taxes.

f.o.b. (free on board) - indicates that all delivery, inspection and elevation or loading costs involved in putting commodities on board a carrier have been paid.

forward contract - a cash market transaction in which two parties agree to the purchase and sale of a commodity at some future time under such conditions as the two agree. in contrast to futures contracts, the terms of forward contracts are not standardized; a forward contract is not transferable and usually can be canceled only with the consent of the other party, which often must be obtained for consideration and under penalty; and forward contracts are not traded ion federally designated contract markets. essentially, forward contract refers to any cash market purchase or sale agreement for which delivery is not made "on the spot."

free supply - stocks of a commodity that are available for commercial sale, as distinguished from government-owned or -controlled stocks.

full carrying charge - see carrying charges.

fully disclosed account - an account carried by the futures commission merchant in the name of the individual customer. opposite of an omnibus account.

fundamental analysis - an approach to market behavior that stresses the study of underlying factors of supply and demand in the commodity, in the belief that such analysis will enable one to profit from being able to anticipate price trends. contrasted with charting.

futures commission merchant (fcm) - an individual or organization which solicits or accepts orders to buy or sell futures contracts or commodity options and accepts money or other assets from customers in connection with such orders. must be registered with the commodity futures trading commission.

futures contract - an agreement to later sell or buy a commodity of a standardized amount and standardized minimum quality grade, during a specific month, under terms and conditions established by the federally designated contract market upon which trading is conducted, at a price established in the trading pit.

futures industry association (fia) - the national trade association for the futures industry.

futures price - the price of a particular futures contract is determined by open competition between buyers and sellers on the trading floor of a commodity exchange.

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general obligation bonds - securities issued by states and municipalities which are secured by the full faith and credit, hence, taxing power, of the issuer.

government national mortgage association certificates (ginnie maes) - certificates backed by an underlying pool of insured or guaranteed mortgages. these certificates carry the full faith and credit of the u.s. government.

government national mortgage association (gnma) - a quasi-governmental organization organized when fnma was split into two divisions in 1968. gnma administers and guarantees mortgage-backed securities.

grain futures act - federal statute that regulates trading in grain futures, effective june 22, 1923; administered by the u.s. department of agriculture; amended in 1936, creating the commodity exchange authority and referred to as the commodity exchange act as amended by the commodity futures trading commission act in 1974.

grantor - a person who sells an option and assumes the obligation but not the right, to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price.

gross processing margin (gpm) - refers to the difference between the costs of soybeans and the combined sales income of the soybean oil and meal that results from processing soybeans. other industries have similar formulas to express the relationships of raw material costs to sales income from finished products.

guided account - a customer account that is part of a program directed by a commodity trading advisor or futures commission merchant. such programs usually require a minimum initial investment and may include a trading strategy that will utilize only a part of the investment at any given time.

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hedging - the initiation of a position in a futures market that is intended as a temporary substitute for the sale or purchase of the actual commodity. the sale of futures contracts in anticipation of future sales of cash commodities as a protection against possible price declines, or the purchase of futures contracts in anticipation of future purchases of cash commodities as a protection against the possibility of increasing costs.

holder - see buyer.

hud - department of housing and urban development.

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in-elasticity - a characteristic that describes the interdependence of the supply, demand and price of a commodity. a commodity is inelastic when a price change does not create an increase or decrease in consumption. in-elasticity exists when supply and demand are relatively unresponsive to changes in price.

initial margin - the amount a futures market participant must deposit into a margin account at the time an order is placed to buy or sell a futures contract. margin in commodities is not a down payment as in securities. see also margin.

institutional customer - in the financial instruments market, roughly analogous to the commercial customer in the grain trade. the institutional customer is one with large holdings in securities (long or short) who is in the market to hedge these interests.

interest rate parity - traditional theory of foreign exchange which states that the forward premium or discount on one currency relative to another is directly related to the interest rate differential between the two countries. because capital controls, restraints to trade, and national economic policy may affect any or all of the variables, actual realization of the theory may be difficult.
in-the-money - an option having intrinsic value. a call is in-the-money if its strike price is below the current price of the underlying futures contract. a put is in-the-money if its strike price is above the current price of the underlying futures contract.

intrinsic value - the dollar amount which would be realized if the option were to be exercised immediately. see also in-the-money.

introducing broker (ib) - firm or individual that solicits or accepts commodity futures orders from customers but does not accept money, securities or property from customers. must be registered with the commodity futures trading commission and must carry all of its accounts through an fcm on a fully disclosed basis.

inverted market - futures market in which the nearer months are selling at premiums over the more distant months; characteristically, a market in which

investment banker - a firm that engages in the origination, underwriting and distribution of an issue.

invisible supply - uncounted stocks of a commodity in the hands of wholesalers, manufacturers and producers which cannot be identified accurately; stocks outside commercial channels but theoretically available to the market.

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job lot - see round lot.

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l - the fourth category in the federal reserve's method of reporting money supply, including m3 plus other liquid assets.

last trading day - day on which trading ceases for the maturing (current) delivery month.

leverage - the potential to increase financial gains as a percentage of an investment. in futures trading, one speaks of the leverage afforded by margin deposits - often representing only 5 to 10 percent of the market value of the futures contract - made as performance bonds. leverage gives a trader the benefit of price movement on the full contract.

leveraged contract - a standardized agreement calling for the delivery of a commodity with payments against the total cost spread out over a period of time. principal characteristics include: standard units and quality of a commodity and of terms and conditions of the contract; payment and maintenance of margin; close out by offset or delivery (after payment in full); and no right to or interest in a specific lot of the commodity. leverage contracts are not traded on exchanges.

leverage transaction merchant (ltm) - the firm or individual through whom leverage contracts are entered. must be registered with the commodity futures trading commission.

life of contract - period between the beginning of trading in a particular future and the expiration of trading in the delivery month.

limit - see price limit, variable limit, position limit.

limit move - a price that has advanced or declined the limit permitted during one trading session as fixed by the rules of a contract market.

limit only - the definite price, stated by a customer to a broker, restricting the execution of an order to buy for not more than or to sell for not less than that stated price.

limit order - an order in which the customer sets a limit on either price or time of execution, or both, as contrasted with a market order, which implies that the order should be filled at the most favorable price as soon as possible.

liquidate - to sell (or purchase) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or make (or take) delivery of the cash commodity represented by the futures market.

liquidity - refers to the least cost at which one can enter and then close out a position.

liquid market - a market in which selling and buying can be accomplished with ease, due to the presence of a large number of interested buyers and sellers willing and able to trade substantial quantities at small price differences.

loan program - primary means of government agriculture price-support operations, in which the government lends money to farmers at pre-announced rates with the farmers' crops used as collateral. default on these loans is the primary method by which the government acquires stocks of agricultural commodities.

long - (1) one who has bought futures contracts or the cash commodity (depending upon the market under discussion) and has not yet offset that position. (2) ("going long") the action of taking a position in which one has bought futures contracts (or the cash commodity) without taking the offsetting action. for example, if you had no position and you bought five contracts, you would be long. however, if your previous position was one of having sold five contracts (i.e., "being short five"), and you then bought five contracts to offset that position, your second action would not be referred to as going long because your position when the second action is concluded would be zero. long is also used with similar meanings as an adjective or adverb.

long hedge - buying futures contracts to protect against possible increasing prices of commodities. see also hedging.

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m1 - money supply as measured by the sum of currency in circulation plus demand deposits in commercial banks, traveler's checks and other checkable deposits (including the net of demand deposits due to foreign commercial banks and official institutions).

m2 - m1 plus overnight repurchase agreements and eurodollars, mmmf balances (general purpose and broker/dealer), mmda's, and savings and small time deposits.

m3 - m2 plus large time deposits, term repurchase agreements, and institution-only mmmf balances.

maintenance margin - a set minimum margin (per outstanding futures contract) that a customer must maintain. see also margin.

margin - an amount of money deposited by both buyers and sellers of futures contracts to ensure performance of the terms of the contract (the delivery or taking of delivery of the commodity or the cancellation of the position by a subsequent offsetting trade). margin in commodities is not a payment of equity or a down payment on the commodity itself but rather is a performance bond or security deposit.

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.

mark to the market - to debit or credit on a daily basis a margin account based on the close of that day's trading session.

market order - an order to buy or sell futures contracts that is to be filled at the best possible price and as soon as possible. in contrast to a limit order, which may specify requirements for a price or time of execution. see also limit order.

matched sales - see reverse repurchase agreements.

matching - the aligning of purchases with corresponding sales as trades are processed.

maturity - period within which a futures contract can be settled by delivery of the actual commodity; the period between the first notice day and the last trading day of a commodity futures contract. also, the due date of a loan, note, bond, or mortgage-backed security.

maximum price fluctuation - see limit move.

member's rate - commission charged for the execution of an order for a person who is a member of the exchange.

metric ton - 2, 204.6 pounds.

mge - the minneapolis grain exchange.

midam - the midamerica commodity exchange.

minimum price fluctuation - see tick.

mortgage - a conveyance of interest in real property given as security for the payment of debt.

mortgage banker - an intermediary that originates loans to permanent investors.

mortgagee - a party to whom property is conveyed as collateral for a loan.

mortgagor - a borrower of funds.

multiplier - in stock index futures trading, the multiplier is the dollar value that is multiplied by the under value to determine the dollar market value of the futures contract.

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national association of futures trading advisors (nafta) - the national trade association of commodity pool operators and commodity trading advisors and related industry participants.

naked writing - writing a call or a put on a futures contract in which the writer has no opposite cash or futures market position. this is also known as uncovered writing.

national futures association (nfa) - authorized by congress in 1974 and designated by the cftc in 1982 as a "registered futures association," nfa is the industry-wide self-regulatory organization of the futures industry.

nearby basis - the difference between the current cash price and the nearby futures contract price.

nearby delivery (month) - the futures contract closest to maturity.

net asset value - the value of each unit of participation in a commodity pool. basically a calculation of assets minus liabilities plus or minus the value of open positions when marked to the market, divided by the number of units.

net performance - an increase or decrease in net asset value exclusive of additions, withdrawals and redemption.

nominal price - declared price for a futures month sometimes used in place of a closing price when no recent trading has taken place in that particular delivery month; usually an average of the bid and asked prices.

note - one of a variety of debt securities. treasury notes refer to coupon securities with a maturity of one to ten years; municipal notes are short-term promissory notes.

notice day - see first notice day.

notice of intention to deliver - a notice that must be presented by the seller to the clearinghouse. the clearinghouse then assigns the notice, and the subsequent delivery instrument to the longest -standing buyer on record. under chicago board of trade rules, such notices typically must be presented by 8:00 p.m. of the second business day prior to the day on which delivery is to be made.

nyce - the new york cotton exchange.

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offer - an indication of willingness to sell at a given price; opposite of a bid.

offset - the liquidation of a purchase of futures through the sale of an equal number of contracts of the same delivery month, or the covering of a short sale of futures contracts through the purchase of an equal number of contracts of the same delivery month. either action transfers the obligation to make or take delivery of the actual commodity to another principal.

omnibus account - an account carried by one futures commission merchant with another in which the transactions of two or more persons are combined rather than designated separately and the identity of the individual accounts is not disclosed.

on track (or track country station) - a type of deferred delivery in which the price is set f.o.b. seller' location and the buyer agrees to pay freight costs to his destination.

open - 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 total number of futures contracts of a given commodity that have not yet been offset by opposite futures transactions nor fulfilled by delivery of the commodity; the total number of open transactions. each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.

open outcry - method of public auction for making verbal offers in the trading pits or rings of commodity exchanges.

opening range - range of closely related prices at which transactions took place at the opening of the market; buying and selling orders at the opening might be filled at any point within such a range.

open trade equity - the unrealized gain or loss on open positions.

opening transaction - a purchase or sale that establishes a new position.

option contract - a contract which gives the buyer the right, but not obligation, to buy (call) or sell (put) a commodity or futures contract at a specified price on or before a specified date. the seller of the option has the obligation to sell the commodity or futures contract or buy it from the option buyer at the exercise price if the option is exercised. see also call (option) and put (option).

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.

option seller - see grantor.

orders, types of - "market orders" are the most commonly used in futures markets. they instruct the broker to buy or sell a given number of futures contracts in a given delivery month at the best price obtainable; the price is not specified. a "limit order" to either buy or sell also gives the market, the quantity, and the delivery month, but states the specific price level at which the order is to be filled. "stop orders" to buy or sell are commonly used either to protect profits or to cut losses. the stop order to buy could be used to protect a short position against a rising market; the buy stop order is activated when the futures market trades at the stop price or is bid at or above the stop price. the sell stop order could be used to protect a long position against a falling market; the sell stop order is activated when the futures market trades at the stop price or is offered at the stop price or below.

original margin - term applied to the initial deposit of margin money required of clearing member firms by clearinghouse rules, or to the initial margin deposit required of customers by exchange regulations.

originate a loan - make or issue a loan.

out-of-the-money - an option having no intrinsic value. that is, a call whose strike price is above the current futures price or a put whose strike price is below the current futures price.

overbought - a technical option that the market price has risen too steeply and too fast in relation to underlying fundamental factors.

oversold - a technical option that the market has declined too steeply and too fast in relation to underlying fundamental factors.

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p r s (purchase and sale) statement - statement sent by a commission house to a customer when his futures position has changed, showing the number of contracts involved, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, and the net profit or loss on the transaction

par - a particular price, 100 percent of principal value; "100."

parity - a theoretically equal relationship between farm product prices and all other prices. in farm program legislation, parity is defined in such a manner that the purchasing power of a unit of an agricultural commodity is maintained at its level during an earlier historical base period.

pass-through - security in which the periodic interest and principal are passed from a mortgagor to an investor through an intermediary.

pit - the area on the trading floor of some exchanges where trading in futures is conducted by open outcry.

point - a dollar amount equal to one percent of principal value of a note or other debt instrument.

pool - see commodity pool.

position - a market commitment. a buyer of futures contracts is said to have a long position and, conversely, a seller of futures contracts is said to have a short position.

position limit - the maximum number of speculative futures contracts one can hold as determined by the commodity futures trading commission and/or the exchange upon which the contract is traded; also called trading limit.

position ~ding - an approach to trading in which the trader either buys or sells contracts and holds them for an extended period of time, as distinguished from day trading, in which the trader will normally initiate and offset his position within a single trading session.

premium - (1) the additional payment allowed by exchange regulations for delivery of higher-than-required standards or grades of a commodity against a futures contract. in speaking of price relationships between different delivery months of a given commodity, one is said to be "trading at a premium" over another when its price is greater than that of the other. in financial instruments, a dollar amount by which a security trades above its principal value. (2) the price of an option - the sum of the money that the option buyer pays and the option writer receives for the rights granted by the option.

prepayment - a premature payoff of a loan. prepayments can be made for the total or partial value of the loan.

price discovery - 'the determination of a fair market value for a commodity.

price limits - the maximum price advance or decline from the previous day's settlement price permitted for a contract in one trading session by the rules of the exchange. see also variable limits.

prime rate - interest rate charged by major banks to their most credit-worthy customers.

principal - (1) sole proprietor, general partner, officer or director, or person occupying a similar status or performing similar functions, having the power to exercise a controlling influence over the activities of the entity. (2) any holder or beneficial owner of 10 percent or more of the outstanding shares of any class of stock of the entity. (3) any person who has contributed 10 percent or more of the capital of the entity. (4) outstanding balance of a loan.

private wires - wires leased by various firms and news agencies for the transmission of information to branch offices and subscriber clients.

privileges - an early form of agricultural options no longer traded.

public elevators - grain-storage facilities, licensed and regulated by state and federal agencies, in which space is rented out to whomever is willing to pay for it; some are also approved by the commodity exchanges as regular for delivery of commodities against futures contracts.

purchase and sale statement (prs) - a statement sent by a futures commission merchant to a customer when a futures or options position has been liquidated or offset. the statement shows the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges and the net profit or loss on the transaction. sometimes combined with a confirmation statement.

put option - an option that gives the option buyer the right to sell (go "short") the underlying futures contract at the strike price on or before the expiration date.

pyramiding - the use of unrealized profits on existing futures positions as margin to increase the size of the position, normally in successively smaller increments.

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quotation - the actual price or the bid or ask price of either cash commodities or futures or options contracts at a particular time. often called a quote.

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rally - an upward movement of prices.

range - the difference between the highest and lowest prices recorded during a given trading session, week, month, year, etc.

registered commodity representative (rcr) - an individual who is registered with the exchange(s) and the cftc to solicit and handle commodity customer business for his firm.

registered security - a security which will pay the owner whose name appears (is registered) on the face of the certificate. securities can be fully registered (principal and interest) or registered as to principal only (coupons are in bearer form).

regression analysis - a statistical technique used in modern stock portfolio analysis to compare returns on a particular stock or particular portfolio of stocks with the returns for a larger group of stocks or an index of stocks. the slope of the resulting regression line is called the beta and it quantifies the stock's or the particular portfolio's sensitivity to systematic risk.

regulations (cftc) - the regulations adopted and enforced by the commodity futures trading commission in order to administer the commodity exchange act.

reparations - compensation payable to a wronged party in a futures or options transaction. the term is used in conjunction with the commodity futures trading commission's customer claims procedure to recover civil damages.

reportable positions - the number of open contracts specified by the commodity futures trading commission at which one must begin reporting total positions by delivery month to the authorized exchange and/or the cftc.

regularity - term used to describe a processing plant, warehouse, mill, vault or bank that satisfies exchange requirements in terms of financing, facilities, capacity and location, and has been approved as acceptable for delivery of commodities against futures contracts.

regulated commodities - effective april, 1975, u.s. futures markets in all commodities became regulated under the commodity exchange act as amended by the commodity futures trading act of 1974. trading by u.s. citizens on foreign futures markets, such as london silver, is not regulated.

reporting limit, reportable position - the number of futures contracts, as determined by the commodity futures trading commission, above which one must report daily to the exchange and the cftc with regard to the size of one's position by commodity, by delivery month, and by purpose of the trading.

repurchase agreements - the buying of securities with the understanding that these securities will be re-sold in the near future. this adds liquidity to the banking system which pressures short rates lower.

retender - the right of holders of futures contracts who have been tendered a delivery notice through the clearinghouse to offer the notice for sale on the open market, liquidating their obligation to take delivery under the contract; applicable only to certain commodities and only within a specified period of time.

reverse repurchase agreements - the sale of securities with the understanding that these securities will be bought back from the original seller in the future. this drains liquidity from the banking system, creating downward pressure on short rates. also referred to as matched sales.

rich - slang for a security that is relatively overpriced.

rings - trading arenas located on the floor of an exchange in which traders execute orders. sometimes called pits.

risk - the degree of likelihood that a particular investment or speculative transaction will produce a loss due to uncertain and volatile price behavior. systematic or market risk is the kind of risk that affects virtually all stocks. unsystematic or firm-specific risk relates specifically to the stock in question and has little influence on the price of stocks in general.

round lot - a quantity of a commodity equal in size to the corresponding futures contract for the commodity, as distinguished from job lot, which may be larger or smaller than the contract.

round ibm - the combination of an initiating purchase or sale of a futures contract and the offsetting sale or purchase of an equal number of futures contracts of the same delivery month. commission fees for commodities transactions cover the round turn.

rules (nfa) - the standards and requirements to which participants who are required to be members of the national futures association must subscribe and conform.

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sample grade - in commodities, usually the lowest quality acceptable for delivery in satisfaction of futures contracts. see contract grades.

sampling - a method of evaluating the price performance of an individual group of stocks compared with the movement of the total stock market. this method involves choosing stocks whose aggregate movement reflects as closely as possible the movement of all stocks.

scalper - a trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.

security - common or preferred stock; a bond, of a corporation, government or quasi government body.

segregated account - a special account used to hold and separate customers' assets from those of the broker or firm.

seller - also known as the option writer or grantor. the seller of an option is subject to a potential obligation if the buyer chooses to exercise the option.

selling hedge (or short hedge) - selling futures contracts to protect against possible decreased prices of commodities which will be sold in the future. see also hedging.

settlement date - date in which ownership and funds are transferred between buyer and seller for a securities transaction.

settlement price - the price established by a clearinghouse at the close of each trading session as the official price to be used in determining net gains or losses, margin requirements, and the next day's price limits. the term "settlement price" is often used as an approximate equivalent to the term "closing price". the "close" in futures trading refers to a very brief period of time at the end of the trading day, during which transactions frequently take place quickly and at a range of prices immediately before the bell. therefore, there frequently is no one closing price, but a range of closing prices. the settlement price is the closing price if there is only one closing price. when there is a closing range, it is as near to the midpoint of the closing range as possible, consistent with the contract's price increments. thus, the settlement price can be used to provide a single reference point for analysis of closing market conditions.

series - all options of the same class which share a common strike price.

short - (1) one who has sold futures contracts or the cash commodity (depending upon the market under discussion) and has not yet offset that position. (2) the action of taking a position in which one has sold futures contracts (or made a forward contract for sale of the cash commodity) without taking the offsetting action. for example, if you had no position and you sold five contracts, your action would be shorting the futures, and you would then be a short. however, if your previous position was one of having bought five contracts (i.e., "being long five"), and you then sold five contracts to offset that position, your second action would not be referred to as shorting, because your position when the second action was concluded would be zero.

short hedge - selling futures contracts to protect against possible declining prices of commodities. see also hedging.

speculator - in an economic sense, one who attempts to anticipate commodity price changes and to profit through the sale and purchase or purchase and sale of commodity futures contracts or of the physical commodity.

spot - refers to the characteristic of being available for immediate (or nearly immediate) delivery. an outgrowth of the phrase "on the spot, " it usually refers to a cash market price for stocks of the physical commodity that are available for immediate delivery. "spot" is also sometimes used in reference to the futures contract of the current month, in which case trading is still "futures" trading but delivery is possible at any time.

spreading - the purchase of one futures contract and sale of another, in the expectation that the price relationships between the two will change so that a subsequent offsetting sale and purchase will yield a net profit. examples include the purchase of one delivery month and the sale of another in the same commodity on the same exchange, or the purchase and sale of the same delivery month in the same commodity on different exchanges, or the purchase of one commodity and the sale of another (wheat vs. corn or corn vs. hogs), or the purchase of one commodity and the sale of products of that commodity (soybeans vs. soybean oil and soybean meal).

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 placed above the market.

strike price - (1) the price at which ginnie mae securities can be sold on a standby commitment. (2) the price at which the holder of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract.

straddle - a position consisting of long positions in a put and call or a short position in a put and a call.

strong hands - in a trading context, this refers. to the ownership of the commodity or security as being a source of considerable financial strength.

swap - exchange of one security for another; usually involves two similar (maturity, coupon, security) bonds.

switch - liquidation of a position in one delivery month of a commodity and simultaneous initiation of a similar position in another delivery month of the same commodity. when used by hedgers, this tactic is referred to as rolling forward the hedge.

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technical analysis - an approach to analysis of futures markets and future trends of commodity prices that examines the technical factors of market activity. technical analysts normally examine patterns of price change, rates of change and changes in volume of trading and open interest, often by charting, in the hope of being able to predict and profit from future trends. contrasted with fundamental analysis.

tender - the act on the part of the seller of futures contracts of giving notice to the clearinghouse that he intends to deliver the physical commodity in satisfaction of the futures contract. the clearinghouse, in turn, passes along the notice to the oldest buyer of record in that delivery month of the commodity. see also retender.

tick - the smallest allowable increment of price movement for a contract. also referred to as minimum price fluctuation.

ticker tape - a continuous paper tape transmission of commodity or security prices, volume, and other trading and market information, which operates on private leased wires by the exchanges, available to their member firms and other interested parties on a subscription basis.

time value - any amount by which an option premium exceeds the option's intrinsic value. if an option has no intrinsic value, its premium is made up entirely of time value.

to-arrive contract - a type of deferred shipment in which the price is based on delivery at the destination point and the seller pays the freight in shipping it to that point.

traders - generally people who trade for their own account or employees of dealers or institutions who trade for their employer's accounts.

trade house - a firm which deals in actual commodities.

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underlying futures contract - the specific futures contract that may be bought or sold by the exercise of an option.

underwriter - a firm that purchases new issues and distributes them. when issues trade, refers to a trade during a time interval when a new issue is sold and actually distributed. until the issue is distributed, it trades on a "when, as, and if issued" basis.

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variable limits - a chicago board of trade price limit system that allows for larger than normally allowable price movements under certain circumstances. those circumstances are as follows: if three or more contracts within a contract year (all contracts in a contract year if there are less than three open contracts) close on the limit bid (lower) for three successive business days then the limit would become 150 percent of the current level for all contract months and remain there for three successive business days.however, in financial instrument futures, if three or more contracts within a contract year (or all contracts in a contract year if there are less than three open contracts) close on the limit bid for one business day or the limit seller for one business day, then the limit would be raised to 150 percent of the current level for all contract months and remain there for three successive business days.if three or more contract months (or all contracts in a contract year if there are less than three open contracts) in a given contract year close on the limit bid for the next three business days or on the limit sellers for three successive business days, then the limits will remain at 150 percent of the original level for another three-day period.the limits would remain at 150 percent for successive periods of three business days until three or more contracts in a year (or all contracts in a contract year if there are less than three open contracts) do not close at the limit on one day during that period. if, at any time during a three-day business period, the three or more contract months (or all contracts in a contract year if there are less than three open contracts) do not close on the limit bid or limit sellers then the limits would revert to their original level at the end of the three-day period.

variation margin call - a call for additional margin deposits made by a clearinghouse to a clearing member while trading is in progress when current price trends have substantially reduced the clearing member's margin deposits. variation calls are payable within the hour.

venture capital - moneys not needed for routine living expenses and basic savings that are available for purposes of investing or speculating.

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warehouse receipt - document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.

weak hands - in a trading context, this refers to the ownership of the commodity or security as being a source of relatively weak financial capability.

weighting - a method of evaluating the price performance of individual stocks compared with the movement of the total stock market. this method involves (1) assigning equal weights to equal price changes, or (2) determining the relative importance of each stock in accordance with market value.

wirehouse - see futures commission merchant.

writer - the seller of an option. the writer is required to fulfill the option should it be exercised. also known as a grantor.

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yield - a measure of the annual return on an investment expressed as a percentage.

yield curve - a chart in which yield level is plotted on the vertical axis, and the term to maturity of debt instruments of similar creditworthiness is plotted on the horizontal axis.

yield to maturity - the current yield augmented or decreased by the amortized difference between the purchase price and the maturity value.

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