Commodity Market Terminology: A Beginner’s Guide

Commodity Market Terminology _A Beginner's Guide

In whichever financial market you choose to trade, you will always come across certain abbreviations and terms. Every financial market has its business language that enables traders to understand each other and conduct business. Commodity Market is not an exception to this rule; it also has a specific business language. It expands the horizons and pours clarity in the minds of investors. 

Learning these terminologies introduce people with various other aspects of trading that generally remain hidden due to the spell of jargons and tough words surrounding them. And given the broad market commodity is, it is imperative for traders to take a walk around knowledge where ever it is available to them. Especially beginners should indulge in activities where they can dig out varied meanings of the coveted financial market that are available in big numbers. 

Here, we will list some commodity trading terms and definitions.

Terms and Definitions Related to Commodity Trading

  •   Accumulation – The way toward purchasing huge pieces of stock/products at the beginning of a positively trending market.
  •   Actuals – Physical merchandise products prepared for shipment, regarded as the basic product of a future contract.
  •   Acquisition – taking over of one organisation by another
  •   Aframax– one medium-size tanker filled with oil and a limit of 80,000 – 120,000 DWT.
  •   Alloys–The metal made by melting at least two metallic components, for the most part, to give properties of expanded quality.
  •   Analyst– A person who does market research, editorial and investigation to help to exchange choices, analysing swapping dangers and market chance variables
  •   Arbitrage– The way of buying or selling a product or asset on two varied markets all the while to exploit slight contrasts in cost between trades/markets
  •   Asset –Financial product that is considered valuable to a business or person
  •   At-the-market – The request to purchase or sell an agreement at an ideal cost once the request arrives at the floor
  •   Aggregate– The complete whole of everything included or gathered into a solitary spot.
  •   Agreement– It is where two gatherings arrive at accord on a lot of realities or game-plan. 
  •   AIFMD– Stands for “Alternative Investment Fund Managers Directive” – a European Union structure for assets and venture firms
  •   Alpha– Alpha is a method for analysing the worth of a functioning asset chief.
  •   Alternative dispute resolution –Two alternative manners, i.e. arbitration and mediation, by which a dispute or conflict can settle, without heading to court.
  • Amortisation- Amortisation has two somewhat various implications, contingent upon whether you’re in America or Britain. 
  •   Appreciation– When an asset’s worth increments after some time.
  •   Arbitrage– Arbitrage is a procedure used to exploit contrasts in cost in generously indistinguishable assets across various markets
  •   Arbitration– It is a method for trying to determine a dispute without going to court. Those included may consent to be limited by choice of the arbitrator.
  •   Assets – All things possessed by the organisation which encourages them to run, for example, cash, gear, land, structures, vehicles, and so forth are counted among assets. These are precious materials, generally. 
  •   Back office – The group who handle the money related and authoritative errands to support front office exchanging/broking groups
  •   Bars– Uniform and smooth bits of metal
  •   Basis/Contract grade– Specific property designs set by trades on the primary product, specified in the trade’s contracts
  •   Bear Market – When the aggregate market is on a descending pattern; ‘a bear market.’
  •   Biofuel– Includes fuel produced using vegetable products – a renewable power source; such as biodiesel.
  •   Break – A quick and broadened drop in the cost of a commodity or product
  •   Brent Crude– Major grouping of low Sulfur, light (small thickness) crude oil utilised as a standard mark in worldwide estimating.
  •   Broker/Brokerage– An individual/company that offers value-based administrations to financial specialists/organisations for the buy and offer of future contracts. 
  •   Bulge– Quick increment in costs of security or tradable asset.
  •   Bulk – The method for exchanging vast amounts of item ‘by bulk’, instead of the holder
  •   Bull – An economic market on an uptrend where costs are relied upon to keep on expanding
  •   Bunker Fuel – A word to depict all power used to control ships. An overwhelming oil item utilised in transport motors
  •   Bad debts– Overdue payouts which are probably not going to be gotten, even after exertion made to recover the assets. It discounted as a misfortune in accounts.
  •   Backwardation – Present money cost for an advantage slips over the cost for forwarding conveyance that is known as ‘backwardation’.
  •   Balance sheet– A report that outlines the business financial circumstance; it subtleties the liabilities, assets, and capital of an organisation. 
  •   Baltic Dry Index – It is a crucial gauge of worldwide cargo movement – estimating the expense of shipping crude materials around the planet.
  •   Bankrupt – the lawful status of an individual or association that can’t reimburse debts claimed to its lenders.
  •   bid-offer spread –It is essentially the contrast between the cost at which one can purchase a stock and the cost at which you can offer it.
  •   Bonus issue – It is regular among British organisations. In the USA, the closest proportionate is a share split.
  •   Book value –Book value is the overall value of the resources of an organisation owing to or claimed by investors.
  •   Bovespa – It is the Brazilian securities exchange’s standard marking index.
  •   Break-even –It is the value that the fundamental resource needs to hit to empower the alternative buyer to recoup their premium.
  •   Buyouts and buy-ins –An administration buyout (MBO) happens when the administration of an organisation buys up controlling interest.
  •   Carry Charge – Expense of handling an actual commodity away, warehousing and protection price.
  •   Cash Commodity– Real physical commodity instead of the fates contract dependent on the actual real commodity.
  •   Cash Market – Market for on-the-spot exchanging whereby the merchandise is for conveyance promptly as opposed to an upcoming date
  •   CFTC– Commodity Futures Trading Commission
  •   CTA– Commodity Trading Advisor
  •   Closing Price– The price all things considered at the trades official close
  •   Casting– The way toward forming liquid metal into explicit shapes/sizes
  •   CBOT – a subsidiaries trade exchange in the USA; also called the Chicago Board of Trade.
  •   CME– A subsidiaries trade exchange in the USA; stands for Chicago Mercantile Exchange.
  •   Commodities – A crude material or essential horticultural item that can be sold or purchased. For example, espresso, oil, metal, or cocoa.
  •   Container– A big box used in the delivery of commodities, regularly for higher worth, littler amount commodities, for example, espresso or groceries.
  •   Commodity Pool– Group of financial specialists in a reserve/pool to trade subsidiary agreements.
  •   Carry trade– carry trades try to bring in cash from the way that the financing costs set by national banks the world over shift impressively.
  •   Contango – The cost of a benefit for forwarding conveyance is ordinarily over the cost one would pay today.
  •   Continuation vote–A speculation organisation’s articles of affiliation frequently accommodate investors to vote and decide on whether the organisation should keep on existing.
  •   Cyclical stocks–The exhibition of cyclical shares is intensely subject to the financial cycle.
  •   Day-Ahead Market– A vitality market for the following day, i.e. 24 hours after the given time
  •   Day Trade – When the buy and offer of the asset happens around the same day
  •   Debt Capital Markets– It is where ventures can raise money for exchanging through the exchanging of debt protections or securities.
  •   Delta – It is a hazard parameter in choices, estimating the affectability of value change corresponding to the hidden resource.
  •   Deferred Swap– Deferred swap is where the instalment of one swap has postponed another swap, however, isn’t, regularly for bookkeeping or duty reasons.
  •   Derivative– It is a monetary agreement supported by the cost of a real product,
  •   Differentials– The payments above or decreases beneath the base evaluation of a product to represent preferred or more awful over trade grade
  •   Defensive stocks– Defensive shares are that stocks which don’t, in general, rely vigorously upon what’s happening in the more extensive national growth for their development.
  •   ECC– Clearing house claimed by European Energy Exchange, for passing on protections listed on the exchange
  •   EEX – A subsidiaries exchange concentrated on force and vitality contracts situated in Germany, stands for European Energy Exchange.
  •   Equities– A portion of business issues for sale in the form of share or any other security.
  • ETF – speculation support traded on a stock market exchange; resources in stocks, securities or items, by and large working an exchange component, Exchange Traded Funds.
  •   Exotics– options with non-standard conditions corresponding to the fundamental resource or the instalment plan.
  •   Ferroalloy– It is a blend of metals having at least one section iron
  •   Financial Risk – Risk associated with the liquidity of any trading action related to a firm or any individual. 
  •   Floor Broker– An order execution trading website which conducts business on the floor of a trade exchange for the benefit of customers
  •   Flow– where an organisation invests client funds and not it’s own. 
  •   FOB– Free ready, take care of the expense of stacking items for shipment
  •   Freight Forward Agreements– It is a forward financial contract utilised in transportation to fence against value unpredictability of freight courses, frequently offered by subordinate authority groups inside shipbrokers
  •   FOREX – stands for foreign exchange; means the currency of different nations
  •   Forward– It is a contract utilised for exchanging items to be conveyed at a predefined date later on.
  •   Forward Shipment – Contract including products to be sent on a predefined date
  •   Foundry – Establishment to cast metal items
  •   Front Office – The department handling sales operations for a company, i.e. customer handling employees. 
  •   Fundamental Analysis– Way of dissecting the business sectors, concentrated on market interest, to distinguish trigger focuses for value changes.
  •   Futures Commission Merchant– A person or broker who executes trade orders on future contracts
  •   Hedging– The act of balancing the price hazard innate in any money advertise position by taking an equivalent yet inverse position in the showcase of the future.
  •   Initial margin– The sum a futures showcase member must store into a margin account at the time a request put into purchasing or selling a futures contract.
  •   Intrinsic value– The contrast between the strike price and the underlying futures price for an option that is in-the-cash.
  •   Long position– One who has purchased futures contracts or plans to possess a money ware.
  •   Maintenance margin– A set least margin that a client must keep up in a margin account.
  •   Nearby month – The futures contract month nearest to lapse. Likewise alluded to as spot month.
  •   Option– A contract that passes on the right, however not the commitment, to purchase or sell a futures contract at a particular rate a predefined time frame.
  •   Option premium – The price of an option; the entirety of cash that the option purchaser pays and the option merchant gets for the rights allowed by the option.
  •   Selling hedge– Selling futures contracts to ensure against reasonable declining prices of wares that will sell later on.
  •   Short position-Selling futures contracts or starting a money forward contract deal without balancing a specific market position.
  •   Speculator-A market member who attempts to benefit from purchasing and selling futures and options contracts by foreseeing future price developments.
  •   Spread-The price contrast between two related markets or products.
  • Strike price-The price at which the futures contract underlying a call or put option can be bought or sold.
  •   Technical analysis-It is a technique for anticipating future price developments utilising recorded prices and exchanging volume.
  •   Underlying futures contracts– The particular futures contract that can be purchased or sold by practising an option.
  •   Volatility-An estimation of the adjustment in price over a given timeframe.
  •   Volume-The quantity of buys or deals of a product futures contract made during a predefined time frame.

Conclusion

As a beginner trader, it is of utmost importance that you should make yourself familiar with the business language. Knowing commodity market glossary, terms, & jargons can remove the restrictions of communication and understanding, making trading more prosperous and fruitful. Acknowledging and profoundly learning about glossaries encompassing commodity markets can avert besmirching. Apart from that, it does not let a broker cheat the user, because sometimes in the garb of wordplay, like terms & conditions such things are said and written, which mean something else. In that case, the familiarity of such keywords can be helpful in the trading market.

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