CFTC Glossary

A Guide to the Language of the Futures Industry

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P&S (Purchase and Sale Statement): A statement sent by a futures commission merchant to a customer when any part of a futures position is offset, showing the number of contracts involved, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, the net profit or loss on the transactions, and the balance. FCMs also send P&S Statements whenever any other event occurs that alters the account balance including when the customer deposits or withdraws margin and when the FCM places excess margin in interest bearing instruments for the customer’s benefit.

Paper Profit or Loss: The profit or loss that would be realized if open contracts were liquidated as of a certain time or at a certain price.

Par: (1) Refers to the standard delivery point(s) and/or quality of a commodity that is deliverable on a futures contract at contract price. Serves as a benchmark upon which to base discounts or premiums for varying quality and delivery locations; (2) in bond markets, an index (usually 100) representing the face value of a bond.

Path Dependent Option: An option whose valuation and payoff depends on the realized price path of the underlying asset, such as an Asian option or a Lookback option.

Pay/Collect: A shorthand method of referring to the payment of a loss (pay) and receipt of a gain (collect) by a clearing member to or from a clearing organization that occurs after a futures position has been marked-to-market. See Variation Margin.

Pegged Price: The price at which a commodity has been fixed by agreement.

Pegging: Effecting transactions in an instrument underlying an option to prevent a decline in the price of the instrument shortly prior to the option’s expiration date so that previously written put options will expire worthless, thus protecting premiums previously received. See Capping.

Performance Bond: See Margin.

Physical : A contract or derivative that provides for the physical delivery of a commodity rather than cash settlement.  See Financial.

Physical Commodity: A tangible commodity rather than a financial commodity, typically an agricultural commodity, energy commodity or a metal.

Physical Delivery: A provision in a futures contract or other derivative for delivery of the actual commodity to satisfy the contract. Compare to cash settlement.

Pip: The smallest price unit of a commodity or currency.

Pit: A specially constructed area on the trading floor of some exchanges where trading in a futures contract or option is conducted. On other exchanges, the term ring designates the trading area for commodity contract.

Pit Brokers: See Floor Broker.

Point-and-Figure: A method of charting that uses prices to form patterns of movement without regard to time. It defines a price trend as a continued movement in one direction until a reversal of a predetermined criterion is met.

Point Balance: A statement prepared by futures commission merchants to show profit or loss on all open contracts using an official closing or settlement price, usually at calendar month end.

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.

Pork Bellies: One of the major cuts of the hog carcass that, when cured, becomes bacon.

Portfolio Insurance: A trading strategy that uses stock index futures and/or stock index options to protect stock portfolios against market declines.

Portfolio Margining: A method for setting margin requirements that evaluates positions as a group or portfolio and takes into account the potential for losses on some positions to be offset by gains on others. Specifically, the margin requirement for a portfolio is typically set equal to an estimate of the largest possible decline in the net value of the portfolio that could occur under assumed changes in market conditions. Sometimes referred to as risked-based margining. Also see Strategy-Based Margining.

Position: An interest in the market, either long or short, in the form of one or more open contracts.

Position Accountability: A rule adopted by an exchange requiring persons holding a certain number of outstanding contracts to report the nature of the position, trading strategy, and hedging information of the position to the exchange, upon request of the exchange. See Speculative Position Limit.

Position Limit: See Speculative Position Limit.

Position Trader: A commodity trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from a day trader, who will normally initiate and offset a futures position within a single trading session.

Positive Carry: The cost of financing a financial instrument (the short-term rate of interest), where the cost is less than the current return of the financial instrument. See Carrying Charges and Negative Carry.

Posted Price: An announced or advertised price indicating what a firm will pay for a commodity or the price at which the firm will sell it.

Prearranged Trading: Trading between brokers in accordance with an expressed or implied agreement or understanding, which is a violation of the Commodity Exchange Act and CFTC regulations.

Premium: (1) The payment an option buyer makes to the option writer for granting an option contract; (2) the amount a price would be increased to purchase a better quality commodity; (3) refers to a futures delivery month selling at a higher price than another, as "July is at a premium over May."

Price Banding: A CME Group and ICE-instituted mechanism to ensure a fair and orderly market on an electronic trading platform. This mechanism subjects all incoming orders to price verification and rejects all orders with clearly erroneous prices. Price bands are monitored throughout the day and adjusted if necessary.

Price Basing: A situation where producers, processors, merchants, or consumers of a commodity establish commercial transaction prices based on the futures prices for that or a related commodity (e.g., an offer to sell corn at 5 cents over the December futures price).

Price Discovery: The process of determining the price level for a commodity through the interaction of buyers and sellers and based on supply and demand conditions.

Price Movement Limit: See Limit (Up or Down).

Primary Market: (1) For producers, their major purchaser of commodities; (2) to processors, the market that is the major supplier of their commodity needs; and (3) in commercial marketing channels, an important center at which spot commodities are concentrated for shipment to terminal markets.

Producer (AP): A large trader that declares itself a “Producer” on CFTC Form 40, which provides as examples, “farmer” and “miner.” A firm that extracts crude oil or natural gas from the ground would also be considered a Producer.

Program Trading: The purchase (or sale) of a large number of stocks contained in or comprising a portfolio. Originally called program trading when index funds and other institutional investors began to embark on large-scale buying or selling campaigns or "programs" to invest in a manner that replicates a target stock index, the term now also commonly includes computer-aided stock market buying or selling programs, and index arbitrage.

Prompt Date: The date on which the buyer of an option will buy or sell the underlying commodity (or futures contract) if the option is exercised.

Prop Shop: A proprietary trading group, especially one where the group's traders trade electronically at a physical facility operated by the group.

Proprietary Account: An account that a futures commission merchant carries for itself or a closely related person, such as a parent, subsidiary or affiliate company, general partner, director, associated person, or an owner of 10 percent or more of the capital stock. The FCM must segregate customer funds from funds related to proprietary accounts.

Proprietary Trading Group: An organization whose owners, employees, and/or contractors trade in the name of accounts owned by the group and exclusively use the funds of the group for all of their trading activity.

Public: In trade parlance, non-professional speculators as distinguished from hedgers and professional speculators or traders.

Public Elevators: Grain elevators in which bulk storage of grain is provided to the public for a fee. Grain of the same grade but owned by different persons is usually mixed or commingled as opposed to storing it "identity preserved." Some elevators are approved by exchanges as regular for delivery on futures contracts, see Regular Warehouse.

Purchase and Sale Statement: See P&S.

Put: An option contract that gives the holder the right but not the obligation to sell a specified quantity of a particular commodity, security, or other asset or to enter into a short futures position at a given price (the "strike price") prior to or on or prior to a specified expiration date.

Pyramiding: The use of profits on existing positions as margin to increase the size of the position, normally in successively smaller increments.