Here you can review a short list of the jargon used in reference to the legal oversight of the Futures industry.
Definitions are not intended to suggest the correct legal significance or exact meaning. They were collected from several sources to help in your understanding of the futures and options industry.
Associated Person (AP)
An individual who solicits orders, customers, or customer funds (or who supervises persons performing such duties) on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor, or a Commodity Pool Operator.
The record of trading information identifying the parties involved in a transaction – the Floor Broker, Clearing Firm, customer, etc. – as well as the terms and time of the trade.
An enterprise which often is operated out of inexpensive, low-rent quarters (hence the term “boiler room”) that uses high pressure sales tactics (generally over the telephone) and possibly false or misleading information to solicit generally unsophisticated investors.
(See Commodity Futures Trading Commission)
Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers’ open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers. See Customer Margin.
A member of an exchange clearinghouse. Memberships in clearing organizations are usually held by companies. Clearing members are responsible for the financial commitments of customers that clear through their firm.
An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data. Clearinghouses act as third parties to all futures and options contracts acting as a buyer to every clearing member seller and a seller to every clearing member buyer.
Commodity Futures Trading Commission (CFTC)
A federal regulatory agency established under the Commodity Futures Trading Commission Act, as amended in 1974, that oversees futures trading in the United States. The commission is comprised of five commissioners, one of whom is designated as chairman, all appointed by the President subject to Senate confirmation, and is independent of all cabinet departments.
Similar to what a mutual fund is to the securities industry. An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts or commodity options.
Commodity Pool Operator (CPO)
An individual or organization that operates or solicits funds for a Commodity Pool.
Commodity Trading Advisor (CTA)
A person who, for compensation or profit, directly or indirectly advises others as to the value or the advisability of buying or selling futures contracts or commodity options. Advising indirectly includes exercising trading authority over a customer’s account as well as providing recommendations through written publications or other media.
Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations. FCMs are responsible for overseeing customer margin accounts.
The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchanges has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.
(See Futures Exchange)
(See Futures Commission Merchant)
Floor Broker (FB)
An individual who executes orders for the purchase or sale of any commodity futures or options contract on any contract market for any other person. A Floor Broker executing orders must be licensed by the CFTC.
An exchange member who generally trades only for his/her own account or for an account controlled by him/her. Also referred to as a “local.”
Futures Commission Merchant (FCM)
A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection with solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades or contracts. The FCM must be licensed by the CFTC.
A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.
The minimum value on deposit in your account to establish a new futures or options position, or to add to an existing position. Initial margin amount levels differ by contract.
Introducing Broker (IB)
A person or organization that solicits or accepts orders to buy or sell futures contracts or commodity options but does not accept money or other assets from customers to support such orders.
The minimum value that you must keep in your account in order to continue to hold a position. The Maintenance Margin is typically less than the Initial Margin, and also differs by contract. If your account falls below the Maintenance Margin requirement, you will receive a margin call. If you wish to continue to hold the position, you will be required to restore your account to the full Initial Margin level (not to the Maintenance Margin level). Also known as the Maintenance Performance Bond. (See lessons, “What is Margin in Futures Trading” and “Initial Margin and Maintenance Margin”)
See Performance Bond
A demand from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a minimum level required to support the positions held. This can be done by either depositing more funds or offsetting some or all of the positions held. (See lessons, “Initial Margin and Maintenance Margin” and “Futures Trading Account Value”)
The daily adjustment of margin accounts to reflect profits and losses.
National Futures Association (NFA)
An industry-wide, industry-supported, self-regulatory organization for futures and options markets. The primary responsibilities of the NFA are to enforce ethical standards and customer protection rules, screen futures professionals for membership, audit and monitor professionals for financial and general compliance rules, and provide for arbitration of futures-related disputes.
Performance Bond (Margin)
Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole. (See lessons, “What is Margin in Futures Trading” and “Initial Margin and Maintenance Margin”)
The maximum number of speculative futures contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange upon which the contract is traded. Also referred to as trading limit.
A person employed by, and soliciting business for, a commission house or Futures Commission Merchant.
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.
The principles for governing a Futures Exchange. In some Exchanges, rules are adopted by a vote of the membership, while regulations can be imposed by the governing board.