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Detailed Glossary
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Fee | ||
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A fee is a cash payment which may be associated with:
Detail Fees are usually cash payments that are not directly related to delivery of a commodity There are four general categories of fees:
Fees booked against trades are generally associated with a cash flow type, so that they can be correctly allocated in P&L, invoicing and general ledger accounting | ||
Floating | ||
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A financial side or leg of a trade that is not fixed in advance, but is dependent on the value of some observable (usually an index) at a pre-agreed time related to the delivery date Detail Most trades involve at least two legs or sides, in a straightforward physical Forward contract one side is the physical delivery of the commodity, the other is the cash payment in settlement of the commodity delivered In an indexed forward, or floating forward, the cash side is not fixed in advance, but related to an index (usually published daily), and generally fixed in daily or monthly either at the daily price or the average of the daily-published monthly price | ||
Forward | ||
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A Forward, or Forward Contract, is an agreement to buy or sell a commodity at a fixed time in the future Details A Forward Contract involves two trading parties: a buyer and a seller. Our organization is one party, the other is the counterparty A Forward Contract can involve almost any terms for quantity (Volume), quality, commodity, delivery period, delivery location, pricing and settlement A Forward Contract may be executed directly with a counterparty, or through an intermediary (a broker) Whether brokered or not, responsibility for delivery and settlement of a Forward Contract is usually directly with the counterparty (see Clearing for an exception) Forward Contracts may be executed at a fixed price, or at a floating price:
Forward contracts may be physically or financially settled:
A financially settled Forward is often referred to as a swap A Forward is usually settled bilaterally between parties. Forwards may be included in a netting agreement Forwards may be included in a margining agreement A Forward may be given up for clearing
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Front Month | ||
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The earliest tradable month of a particular contract - normally a Futures contract Detail It's easiest to give an example: A March monthly contract may be tradable up to the 25th of February On 25th February the Front Month would be March On the 26th February the Front Month would be April Contracts beyond the Front Month are sometimes called Back Months | ||
Futures Contract | ||
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A Futures Contract is an agreement to buy or sell a commodity at a fixed time in the future executed on or with an Exchange Detail Note the similarity in description to a Forward Contract We will focus mainly on the differences Exchanges list standardized products that may be traded. A product describes a standardized commodity, delivery period and delivery location that may be traded Exchanges list a buy and a sell price for every different product they list. These buy and sell prices are provided by Market Makers Futures Contracts are always cleared Futures Contracts may be physically or financially settled A financially settled futures contract may be taken into the delivery period, and is settled by daily margining at the daily fixed in price If you're wondering how that is different to an exchange-traded swap - then the difference is a swap is very like a financially settled futures contract, but the swap is generally not daily margined | ||