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25 Trading and Investment Buzzwords You Should Know

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Bull and Bear

When you are trading or investing, it is most important to know the buzzwords as you will be hearing and using them a lot. Here are 25 important buzzwords you should know:

Arbitrage

The simultaneous purchase and sale of similar commodities in different exchanges or in different contracts of the same commodity in one exchange to take advantage of a price discrepancy.

Bid and Offer

Bid is an expression indicating a desire to buy a commodity at a given price, while offer is an expression indicating one’s desire to sell a commodity at a given price.

Brokerage Fee

A fee charged by a broker for executing a transaction.

Blue Chips

The shares of a company known to make profits in good and bad times. As there is a low risk of capital loss, the dividend and earnings yield are proportionately low.

Bull and Bear Market

Bull market is a period of rising market prices while bear market is a period of declining market prices.

Call Option

An option that gives the buyer the right, but not the obligation, to purchase (go “long") the underlying futures contract at the strike price on or before the expiration date.

Cash Commodity

The actual physical commodity as distinguished from the futures contract based on the physical commodity.

Closing Price

The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm’s net gains or losses, margin requirements, and the next day’s price limits, based on each futures and options contract settlement price. If there is a closing range of prices, the settlement price is determined by averaging those prices. Also referred to as settle price.

Commodity

An article of commerce or a product that can be used for commerce. In a narrow sense, products traded on an authorized commodity exchange. The types of commodities include agricultural products, metals, petroleum, foreign currencies, financial instruments and indices, to name a few.

Convergence

The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month.

Daily Trading Limit

The maximum price range set by the exchange cash day for a contract.

Day Trader

 A speculator who will normally initiate and offset a position within a single trading session.

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.

Derivative

A financial instrument, traded on or off the exchange, the price of which is directly dependent upon the value of one or more underlying securities, equity indices, debt instruments, or any agreed upon pricing index or arrangement.

Hedging

The practice of offsetting the price risk inherent in any cash market position by taking the opposite position in the futures market. Hedgers use the market to protect their businesses from adverse price changes.

Initial Margin

The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as original margin.

Leverage

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

Long and Short

Long is one who has bought futures contracts or owns a cash commodity while short is one who has sold futures contracts or the cash commodity.

Open Interest

Open interest is the sum of all long or short futures contracts in one delivery month or one market that have been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery.

Position

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

Price Limit

The maximum advance or decline from the previous day’s settlement price permitted for a futures contract in one trading session.

Spot

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

Tick

The smallest allowable increment of price movement for a contract. Also referred to as Minimum Price Fluctuation.

Trade Account

To trade in the futures market the client has to register himself and open an account with the broking organization known as trading account.

Volatility

A measurement of the change in price over a given time period.

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Wan Zuraiha Wan Zakaria is a staff writer at Oriental Pacific Futures (OPF) where she writes on investment and trading. OPF is a futures and options broker based in Kuala Lumpur, Malaysia and provides electronic trading, brokerage and clearing services to retail and institutional traders since 2007. OPF is licensed under the Securities Commissions of Malaysia and offers cash-settled derivatives instruments traded on Bursa Malaysia, as well as select major derivatives exchanges around the world.

Oriental Pacific Futures articles published on the Corporate Website (www.opf.com.my) may be reprinted, reposted or distributed free for educational purposes only on the condition that Oriental Pacific Futures and the Corporate Website link information http://www.opf.com.my are included. However, other organizations are invited to link to articles that are available in the public area of the Oriental Pacific Futures’ Learning Resources website. No additional permission is needed for such a link.

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