35 terms

Commodities

Basis: The difference between the local cash price of a commodity and the futures price used to hedge it.
Basis risk: The risk that the price you are hedging and the futures contract you hedged with move apart.
Bona fide hedge exemption: Permission for a commercial firm to exceed speculative position limits because its futures offset a genuine physical exposure.
Cash market (physical market): The market where the actual commodity changes hands now, at negotiated prices, as opposed to the standardized futures market.
Cash-and-carry arbitrage: Buying the physical commodity, storing and financing it, and selling a futures contract against it to lock in the spread when futures trade above full carry.
Commercial trader: A COT category for firms that handle the physical commodity and use futures to hedge it — farmers, elevators, refiners, miners, processors and end users.
Commitments of Traders report (COT): The CFTC's weekly breakdown of open interest by trader category, published Friday afternoon for positions held as of the previous Tuesday.
Convenience yield: The intangible benefit of holding the physical commodity rather than a futures claim on it, which pushes curves into backwardation.
Convergence: The tendency of a futures price to meet the cash price of the underlying commodity as expiry approaches.
Cross hedge: Hedging an exposure with a futures contract on a different but correlated asset, because no contract exists on the thing you actually own.
Deliverable grade: The exact quality specification a commodity must meet to be delivered against a futures contract.
Delivery differential: The published price adjustment applied when a deliverable commodity is of a different grade or location than the contract's par standard.
Delivery notice: The document a short position files to start physical delivery, which the clearing house then assigns to a long.
Delivery period: The span from first notice day to last delivery day during which shorts may tender the physical commodity and longs may be assigned it.
Disaggregated COT: The more granular version of the Commitments of Traders report, which splits the old commercial and non-commercial buckets into four clearer categories.
Exchange for physical (EFP): A privately negotiated swap of a futures position for an equivalent cash-market position, reported to the exchange but not traded on the screen.
Forward contract: A private, customized agreement to buy or sell something at a set price on a future date, without exchange standardization or clearing.
Full carry: The theoretical maximum contango: the deferred price at which financing plus storage plus insurance exactly equals the spread over the nearby.
Goldman roll: The five-day window each month when major long-only commodity indices roll their positions from the front month to the next, on a published, predictable schedule.
Hedger: A market participant who uses futures to offset a price risk they already carry in the physical world, accepting a known price instead of an unknown one.
Last notice day: The final day a delivery notice can be issued for a futures contract month, closing the delivery window.
Light sweet crude: The crude oil quality deliverable against the NYMEX WTI contract: low density (light) and low sulphur (sweet), which refiners prefer because it yields more gasoline and diesel.
Long hedge: Buying futures to protect against a rise in the price of something you will need to purchase later.
Managed money: The disaggregated COT category covering registered commodity trading advisors, commodity pool operators and hedge funds trading futures for clients.
Non-commercial trader: The COT category for large reportable participants with no physical business in the commodity — the legacy report's label for speculators.
Non-reportable positions: The residual in the COT report: everyone whose position is too small to trigger reporting, obtained by subtracting reported positions from total open interest.
Physical delivery: Expiry method where the short delivers the actual commodity to the long, through exchange-approved locations and grades.
Registered and eligible stocks: Exchange vault categories: registered metal is backed by warrants and deliverable now; eligible metal meets the spec but is not currently offered for delivery.
Seasonality (commodity): The recurring annual pattern in a commodity's supply, demand and price, driven by harvests, weather, heating and cooling cycles and driving seasons.
Short hedge: Selling futures to protect against a fall in the price of something you own or will produce.
Speculator: A participant who takes futures risk deliberately in pursuit of profit, with no underlying physical exposure to offset.
Stopping delivery: Being assigned the physical commodity as the holder of a long futures position, and paying the invoice in full to take title.
Storage cost: What it costs to hold a physical commodity for a period, and one of the main inputs to the shape of a futures curve.
Swap dealer: A COT category for banks and dealers that use futures to hedge over-the-counter swap exposure, typically the other side of commodity index products.
Warehouse receipt: The transferable title document that changes hands in a commodity futures delivery, representing goods stored at an approved facility.

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