CFTC Glossary

A Guide to the Language of the Futures Industry


Haircut: In computing the value of assets for purposes of capital, segregation, or margin requirements, a percentage reduction from the stated value (e.g., book value or market value) to account for possible declines in value that may occur before assets can be liquidated.

Hand Held Terminal: A small computer terminal used by floor brokers or floor traders on an exchange to record trade information and transmit that information to the clearing organization.

Hardening: (1) Describes a price which is gradually stabilizing; (2) a term indicating a slowly advancing market.

Hard Position Limit: A speculative position limit, especially in contrast to a position accountability level.

Head and Shoulders: In technical analysis, a chart formation that resembles a human head and shoulders and is generally considered to be predictive of a price reversal. A head and shoulders top (which is considered predictive of a price decline) consists of a high price, a decline to a support level, a rally to a higher price than the previous high price, a second decline to the support level, and a weaker rally to about the level of the first high price. The reverse (upside-down) formation is called a head and shoulders bottom (which is considered predictive of a price rally).

Heavy: A market in which prices are demonstrating either an inability to advance or a slight tendency to decline.

Hedge Exemption: An exemption from speculative position limits for bona fide hedgers and certain other persons who meet the requirements of exchange and CFTC rules.

Hedge Fund: A private investment fund or pool that trades and invests in various assets such as securities, commodities, currency, and derivatives on behalf of its clients, typically wealthy individuals. Some commodity pool operators operate hedge funds.

Hedge Ratio: Ratio of the value of futures contracts purchased or sold to the value of the cash commodity being hedged, a computation necessary to minimize basis risk.

Hedger: A trader who enters into positions in a futures market opposite to positions held in the cash market to minimize the risk of financial loss from an adverse price change; or who purchases or sells futures as a temporary substitute for a cash transaction that will occur later. One can hedge either a long cash market position (e.g., one owns the cash commodity) or a short cash market position (e.g., one plans on buying the cash commodity in the future).

Henry Hub: A natural gas pipeline hub in Louisiana that serves as the delivery point for New York Mercantile Exchange natural gas futures contracts and often serves as a benchmark for wholesale natural gas prices across the U.S.

Hidden Quantity Order: An order placed on an electronic trading system whereby only a portion of the order is visible to other market participants. As the displayed part of the order is filled, additional quantities become visible. Also called Iceberg, Max Show.

High Frequency Trading: Computerized or algorithmic trading in which transactions are completed in very small fractions of a second.

Historical Volatility: A statistical measure of the volatility (specifically, the annualized standard deviation) of a futures contract, security, or other instrument over a specified number of past trading days.

Hog-Corn Ratio: See Feed Ratio.

Horizontal Spread (also called Time Spread or Calendar Spread): An option spread involving the simultaneous purchase and sale of options of the same class and strike prices but different expiration dates. See Diagonal Spread, Vertical Spread.

Hybrid Instruments: Financial instruments that possess, in varying combinations, characteristics of forward contracts, futures contracts, option contracts, debt instruments, bank depository interests, and other interests. Certain hybrid instruments are exempt from CFTC regulation.