Here are all the only "B" words you need to know in the investing world.
Back Months: Those futures delivery months with expiration or delivery dates
furthest into the future; futures delivery months other than the spot or nearby
delivery month.
Backpricing: Fixing the price of a commodity for which the commitment to purchase
has been made in advance. The buyer can fix the price relative to any
monthly or periodic delivery using the futures markets.
Backwardation: Market situation in which futures prices are progressively lower in
the distant delivery months. For instance, if the gold quotation for February is
$160.00 per ounce and that for June is $155.00 per ounce, the backwardation for
four months against January is $5.00 per ounce. (Backwardation is the opposite of
contango). See Inverted Market.
Banker’s Acceptance: A draft or bill of exchange accepted by a bank where the
accepting institution guarantees payment. Used extensively in foreign trade transactions.
Basis: The difference between the spot or cash price of a commodity and the
price of the nearest futures contract for the same or a related commodity. Basis is
usually computed in relation to the futures contract next to expire and may reflect
different time periods, product forms, qualities, or locations.
Basis Grade: The grade of a commodity used as the standard or par grade of a
futures contract.
Basis Point: The measurement of a change in the yield of a debt security. One
basis point equals 1/100 of one percent.
Basis Quote: Offer or sale of a cash commodity in terms of the difference above
or below a futures price (e.g., 10 cents over December corn).
Basis Risk: The risk associated with an unexpected widening or narrowing of basis
between the time a hedge position is established and the time that it is lifted.
Bear: One who expects a decline in prices. The opposite of a “bull.” A news item is
considered bearish if it is expected to result in lower prices.
Bear Market: A market in which prices are declining.
Bear Spread: The simultaneous purchase and sale of two futures contracts in the
same or related commodities with the intention of profiting from a decline in prices
but at the same time limiting the potential loss if this expectation does not materialize.
In agricultural products, this is accomplished by selling a nearby delivery and
buying a deferred delivery.
Bear Vertical Spread: A strategy employed when an investor expects a decline
in a commodity price but at the same time seeks to limit the potential loss if this
expectation is not realized. This spread requires the simultaneous purchase and
sale of options of the same class and expiration date but different strike prices. For
example, if call options are spread, the purchased option must have a higher exercise
price than option that is sold.
Beta (Beta Coefficient): A measure of the variability of rate of return or value
of a stock or portfolio compared to that of the overall market.
Bid: An offer to buy a specific quantity of a commodity at a stated price.
Blackboard Trading: The practice of selling commodities from a blackboard on a
wall of a commodity exchange.
Black-Scholes Model: An option pricing formula initially developed by F. Black
and M. Scholes for securities options and later refined by Black for options on futures.
Board Broker System: A system of trading in which an individual member of an
exchange (or a nominee of the member) is designated as a Board Broker for a
particular commodity with the responsibility of executing orders left with him by
other members on the floor, providing price quotations, and maintaining orderliness
in the trading crowd. A Board Broker may not trade for his own account or the
account of an affiliated organization. Also See Free Crowd Systems and Specialist
System.
Board Order: See Market-if-Touched Order.
Board of Trade: Any exchange or association, whether incorporated or unincorporated,
of persons who are engaged in the business of buying or selling any commodity
or receiving the same for sale on consignment.
Boiler Room: 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.
Booking the Basis: A forward pricing sales arrangement in which the cash price
is determined either by the buyer or seller within a specified time. At that time, the
previously-agreed basis is applied to the then-current futures quotation.
Book Transfer: A series of accounting or bookkeeping entries used to settle a
series of cash market transactions.
Box Transaction: An option position in which the holder establishes a long call
and a short put at one strike price and a short call and a long put at another strike
price, all of which are in the same contract month in the same commodity.
Break: A rapid and sharp price decline.
Broker: A person paid a fee or commission for executing buy or sell orders for a
customer. In commodity futures trading, the term may refer to: (1) Floor Broker—
a person who actually executes orders on the trading floor of an exchange; (2)
Account Executive, Associated Person, registered Commodity Representative or
Customer’s Man—the person who deals with customers in the offices of futures
commission merchants; or (3) the Futures Commission Merchant.
Broker Association: Two or more exchange members who (1) share responsibility
for executing customer orders; (2) have access to each other’s unfilled customer
orders as a result of common employment or other types of relationships; or
(3) share profits or losses associated with their brokerage or trading activity.
Bucketing: Directly or indirectly taking the opposite side of a customer’s order
into a broker’s own account or into an account in which a broker has an interest,
without open and competitive execution of the order on an exchange.
Bucket Shop: A brokerage enterprise which “books” (i.e., takes the opposite side
of) a customer’s order without actually having it executed on an exchange.
Bulge: A rapid advance in prices.
Bull: One who expects a rise in prices. The opposite of “bear.” A news item is
considered bullish if it portends higher prices.
Bullion: Bars or ingots of precious metals, usually cast in standardized sizes.
Bull Market: A market in which prices are rising.
Bull Spread: The simultaneous purchase and sale of two futures contracts in the
same or related commodities with the intention of profiting from a rise in prices
but at the same time limiting the potential loss if this expectation is wrong. In
agricultural commodities, this is accomplished by buying the nearby delivery and
selling the deferred.
Bull Vertical Spread: A strategy used when an investor expects that the price
of a commodity will go up but at the same time seeks to limit the potential loss
should this judgment be in error. This strategy involves the simultaneous purchase
and sale of options of the same class and expiration date but different strike
prices. For example, if call options are spread, the purchased option must have a
lower exercise or strike price than the sold option.
Buoyant: A market in which prices have a tendency to rise easily with a considerable
show of strength.
Butterfly Spread: A three-legged spread in futures or options. In the option
spread, the options have the same expiration date but differ in strike prices. For
example, a butterfly spread in soybean call options might consist of two short calls
at a $6.00 strike price, one long call at a $6.50 strike price, and one long call at a
$5.50 strike price.
Buyer: A market participant who takes a long futures position or buys an option.
An option buyer is also called a taker, holder, or owner.
Buyer’s Call: See Call.
Buyer’s Market: A condition of the market in which there is an abundance of
goods available and hence buyers can afford to be selective and may be able to
buy at less than the price that previously prevailed. See Seller’s Market.
Buying Hedge (or Long Hedge): Hedging transaction in which futures contracts
are bought to protect against possible increases in the cost of commodities.
SeeHedging.
Buy (or Sell) On Close: To buy (or sell) at the end of the trading session within
the closing price range.
Buy (or Sell) On Opening: To buy (or sell) within the open price range.
