OPERATIONAL DEFINITIONS

OPERATIONAL DEFINITIONS

Short selling

Selling first is known better as ‘shorting’ or ‘short selling’. In futures trading, since one is taking a future delivery, its just as easy to sell first and then buy later. To offset the obligation to deliver, all one needs to do is to buy back the Contract prior to the expiration of the Contract.

Margin

A margin refers to a good faith deposit made by the person who wants to buy or sell a Contract in a futures exchange. It is a small percentage of the value of the underling commodity represented by the Contract, generally in the neighborhood of 2 to 10%.

Leverage

Leverage is the ability to buy or sell $100,000 of a commodity with a $5000 security deposit, so that small price changes can result in huge profits or losses.

Maintenance margin

Maintenance margin is the amount which must be maintained in ones account as long as the position is active.

Margin call

If the equity balance in the account falls bellow the maintenance margin level, due to adverse market movement, the account holder will be issued a margin call.

Tick

A tick refers to the minimum price fluctuation, is a function of how the prices are quoted and set by the exchange.

Float

Float refers to the concept, when an investor who has taken a position, but does not want to liquidate his position at close of the market.

Limit up/down

It refers to the maximum amount that the market can move above or below the previous day’s close in a single trading session. If the price moves up it is known as ‘limit up’, when the price moves down its is known as ‘limit down’.