CFTC Glossary

A Guide to the Language of the Futures Industry


Qualified Eligible Person (QEP): The definition of QEP is too complex to summarize here; please see CFTC Regulation 4.7(a)(2) and (a)(3), 17 CFR 4.7(a)(2) and (a)(3), for the full definition.

Quick Order: See Fill or Kill Order.

Quotation: The actual price or the bid or ask price of either cash commodities or futures contracts.

Rally: An upward movement of prices.

Random Walk: An economic theory that market price movements move randomly. This assumes an efficient market. The theory also assumes that new information comes to the market randomly. Together, the two assumptions imply that market prices move randomly as new information is incorporated into market prices. The theory implies that the best predictor of future prices is the current price, and that past prices are not a reliable indicator of future prices. If the random walk theory is correct, technical analysis cannot work.

Range: The difference between the high and low price of a commodity, futures, or option contract during a given period.

Ratio Hedge: The number of options compared to the number of futures contracts bought or sold in order to establish a hedge that is neutral or delta neutral.

Ratio Spread: This strategy, which applies to both puts and calls, involves buying or selling options at one strike price in greater number than those bought or sold at another strike price. Ratio spreads are typically designed to be delta neutral. Back spreads and front preads are types of ratio spreads.

Ratio Vertical Spread: See Front Spread.

Reaction: A downward price movement after a price advance.

Recovery: An upward price movement after a decline.

Reference Asset: An asset, such as a corporate or sovereign debt instrument, that underlies a credit derivative.

Regular Warehouse: A processing plant or warehouse that satisfies exchange requirements for financing, facilities, capacity, and location and has been approved as acceptable for delivery of commodities against futures contracts. See Licensed Warehouse.

Replicating Portfolio: A portfolio of assets for which changes in value match those of a target asset. For example, a portfolio replicating a standard option can be constructed with certain amounts of the asset underlying the option and bonds. Sometimes referred to as a synthetic asset.

Repo or Repurchase Agreement: A transaction in which one party sells a security to another party while agreeing to repurchase it from the counterparty at some date in the future, at an agreed price. Repos allow traders to short-sell securities and allow the owners of securities to earn added income by lending the securities they own. Through this operation the counterparty is effectively a borrower of funds to finance further. The rate of interest used is known as the repo rate.

Reporting Level: Sizes of positions set by the exchanges and/or the CFTC at or above which commodity traders or brokers who carry these accounts must make daily reports about the size of the position by commodity, by delivery month, and whether the position is controlled by a commercial or non-commercial trader. See the Large Trader Reporting Program.

Resistance: In technical analysis, a price area where new selling will emerge to dampen a continued rise. See Support.

Resting Order: A limit order to buy at a price below or to sell at a price above the prevailing market that is being held by a floor broker. Such orders may either be day orders or open orders.

Retail Customer: A customer that does not qualify as an eligible contract participant under Section 1a(12) of the Commodity Exchange Act, 7 USC 1a(12). An individual with total assets that do not exceed $10 million, or $5 million if the individual is entering into an agreement, contract, or transaction to manage risk, would be considered a retail customer.

Retender: In specific circumstances, some exchanges permit holders of futures contracts who have received a delivery notice through the clearing organization to sell a futures contract and return the notice to the clearing organization to be reissued to another long; others permit transfer of notices to another buyer. In either case, the trader is said to have retendered the notice.

Retracement: A reversal within a major price trend.

Reversal: A change of direction in prices. See Reverse Conversion.

Reverse Conversion or Reversal: With regard to options, a position created by buying a call option, selling a put option, and selling the underlying instrument (for example, a futures contract). See Conversion.

Reverse Crush Spread: The sale of soybean futures and the simultaneous purchase of soybean oil and meal futures. See Crush Spread.

Riding the Yield Curve: Trading in an interest rate futures contract according to the expectations of change in the yield curve.

Ring: A circular area on the trading floor of an exchange where traders and brokers stand while executing futures trades. Some exchanges use pits rather than rings.

Risked-Based Margining: See Portfolio Margining.

Risk Factor: See Delta.

Risk/Reward Ratio: The relationship between the probability of loss and profit. This ratio is often used as a basis for trade selection or comparison.

Roll-Over: A trading procedure involving the shift of one month of a straddle into another future month while holding the other contract month. The shift can take place in either the long or short straddle month. The term also applies to lifting a near futures position and re-establishing it in a more deferred delivery month.

Round Lot: A quantity of a commodity equal in size to the corresponding futures contract for the commodity. See Even Lot.

Round Trip Trading: See Wash Trading.

Round Turn: A completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.

Rules: The principles for governing an exchange. In some exchanges, rules are adopted by a vote of the membership, while in others, they can be imposed by the governing board.

Runners: Messengers or clerks who deliver orders received by phone clerks to brokers for execution in the pit.