Author Box
Articles Categories
All Categories
Articles Resources

Common Terminology in Futures and Commodities Trading

March 27, 2012 | Comments: 0 | Views: 123

While at a coffee shop with friends, one turns to you and says, "I just went LONG in Lean Hogs off a confirmed swing bottom." What did he say? He went "LONG" in a hog off a swing in the bottom?"

For those of us who trade, we instantly know what was just said. By going "LONG", this person BOUGHT (or is a BUYER) in the Lean Hogs futures market. His decision to do so was based on his determining that Lean Hogs had made a bottom and was now moving higher, thus 'confirming' the bottom.

The term LONG is very common in trading circles. It simply means that you took the BUY SIDE of the trade (every trade has two sides, the one who SELLS and the one who BUYS). You believe the market is going to go UP, so you decide to BUY, thus going LONG.

The term SHORT is the opposite of LONG. When you go SHORT, you are a SELLER in the market. In trading Futures and Commodities, you can just as easily SELL first to open the position SHORT, in hopes the market is going to go down. Later, you can then close your position with a BUY.

When you BUY to enter a position, you are LONG. But when you BUY to exit a position, because you SOLD first (went SHORT), you are simply out of your position.

When you SELL to enter a position, you are SHORT. But when you SELL to exit a position, because you BOUGHT first (went LONG), you are simply out of your position.

When you are out of all your positions, you are considered FLAT.

MARGIN is a term used in reference to the amount of money you have available in your trading account that can be used for trading. Brokers require that you have a certain amount of capital available for each contract you trade, in the event that the trade does not go in your favor. A MAINTENANCE MARGIN is the minimum margin you must have in your account for each futures contract you enter into.

BULL MARKET refers to a period when prices are rising. A BEAR MARKET refers to a period when prices are declining.

COMMISSIONS are the fees you pay to the broker for executing your trades.

HEDGING is the practice of offsetting your risk in the actual commodity by taking an equal but opposite position in the futures market. For example, a Farmer who grows Wheat has inherent risks to his crop. By the time he goes to market, prices could have dropped. To protect himself, he can take a SHORT position in the Wheat futures. If the price of Wheat drops by the time he goes to sell his crop, he losses in the actual crop, but he gains in the SHORT futures position, thus offsetting his losses. If the price of Wheat instead moves higher, he gains in the higher prices he is able to sell his Wheat for, but losses in his SHORT futures, again offsetting each other.

DELIVERY refers to the transfer of the actual commodity from the seller of a futures contract to the buyer of the futures contract. Most traders do not take delivery, but will close out their position by FIRST NOTICE DAY.

FIRST NOTICE DAY refers to the first day that a notice of intent to deliver a commodity can be made by a clearinghouse to a buyer of a futures contract.

These are some of the terms you can expect to hear among traders of Futures. There are a few others, less used. And if you trade Options on Futures, you have a whole set of terms such as PUT, CALL, In-the-Money, Out-of-the-Money, etc.

Before engaging in futures trading, take the time to learn the language. This way, there will be no mistakes in communication between you and your broker, and it helps when sitting around with traders at the coffee shop.

Know in Advance the Market Turns of Tomorrow! With the right market information, you will know when to a bottom or top is going to form with a high degree of accuracy. The FDates Market Timing Membership provides the right market information you need to succeed.

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Futures Contract


Commodities Trading


Futures Trading


Common Terminology


Trading Futures

Forex dealing is dealing in currency trading and basically includes dealing in foreign exchange while the stock market dealing is the dealing of stock in a standard market market. The two types of

By: Anil Mali l Investing > Stocks l October 25, 2012 lViews: 245

Investments in silver metal can be done by several ways. The article talks about the best ways of silver investments. Silver, the precious metal has always attracted investors for several reasons.

By: Kyles Humphrey l Investing > Gold Silver l August 17, 2012 lViews: 305

The article offers reasonable reasons for high oil prices. Crude is indispensable and it is a great source of energy. The prices on oil keep on altering, sometimes it is too high and sometimes it

By: Kyles Humphrey l Investing > Stocks l August 17, 2012 lViews: 286

Many investors are unaware of new tax that will be levied as part of the Supreme Court’s decision to uphold President Obama’s health care reform. The investment tax, as it is being referenced,

By: Ben Esget l Investing > Retirement Planning l July 17, 2012 lViews: 405

A few months ago, I was at Starbucks talking to someone about stocks and bonds, he and his wife had worked hard and were worried about the stock market. They wanted something much less risky. He

By: Lance Winslow l Investing > Stocks l July 11, 2012 lViews: 434

The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.

By: Lawrence Tepper l Investing > Retirement Planning l July 10, 2012 lViews: 240

People who would like to try the trading business have to learn the various tools that are used in analyzing the market trends and conditions. Mastering the use of the Fibonacci Trading Technique for

By: David Riveral Investing > Futures and Commoditiesl June 13, 2012 lViews: 164

The oil and gas industry is one of the considerably changing and most important global industries all over the world. Oil and gas both are obtained from under the surface of earth. These energy

By: David L Greenel Investing > Futures and Commoditiesl June 09, 2012 lViews: 229

There are many jobs available in the oil and gas industry. These jobs were available in the recession period as well. Since these jobs are considered evergreen, several people are engaging in this

By: David L Greenel Investing > Futures and Commoditiesl June 09, 2012 lViews: 186

Traders have long been using various trading techniques throughout the decades although there have been various changes that have occurred in the different markets such as commodities, stocks or

By: David Riveral Investing > Futures and Commoditiesl June 06, 2012 lViews: 159

Those who are interested in any trading activities must know something more about commodities. Learning how to trade commodities is important because it is one of the main trading systems all around

By: David Riveral Investing > Futures and Commoditiesl June 06, 2012 lViews: 154

Traders who are involved in trading commodity futures work on buying as well as selling of contracts. However, the delivery of the physical goods that are involved in the transactions will have to

By: David Riveral Investing > Futures and Commoditiesl June 05, 2012 lViews: 158

Discuss this Article

comments powered by Disqus