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Basis Swap
A swap whose cash settlement price is calculated based on the basis between a futures contract and the spot price of the underlying commodity or a closely related commodity on a specified date.
Systemic Risk
The risk that a default by one market participant will have repercussions on other participants due to the interlocking nature of financial markets. For example, Customer A’s default in X market may affect Intermediary B’s ability to fulfill its obligations in Markets X, Y, and Z.
Butterfly Spread
A three-legged option spread in which each leg has the same expiration date but different strike prices. For example, a butterfly spread in soybean call options might consist of one long call at a $5.50 strike price, two short calls at a $6.00 strike price, and one long call at a $6.50 strike price.
Aggregation
The principle under which all futures positions owned or controlled by one trader (or group of traders acting in concert) are combined to determine reporting status and compliance with speculative position limits. See CFTC Backgrounder: Speculative Limits, Hedging, and Aggregation.
Exercise Price (Strike Price)
The price, specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to buyer.
Buy (or Sell) On Opening
To buy (or sell) at the beginning of a trading session within the open price range.
Accrued interest
Interest deemed to be earned on a security but not yet paid to the investor.
Ponzi Scheme
Named after Charles Ponzi, a man with a remarkable criminal career in the early 20th century, the term has been used to describe pyramid arrangements whereby an enterprise makes payments to investors from the proceeds of a later investment rather than from profits of the underlying business venture, as the investors expected, and gives investors the impression that a legitimate profit-making business or investment opportunity exists, where in fact it is a mere fiction.
Par
Refers to the standard delivery point(s) and/or quality of a commodity that is deliverable on a futures contract at contract price.
Equity
As used on a trading account statement, refers to the residual dollar value of a futures or option trading account, assuming it was liquidated at current prices.
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