Word of the Day
Futures Terms that begin "S"
Scalper
A speculator on the trading floor of an exchange who buys and sells rapidly, with small profits or losses, holding his positions for only a short time during a trading session. Typically, a scalper will stand ready to buy at a fraction below the last transaction price and to sell at a fraction above, e.g., to buy at the bid and sell at the offer or ask price, with the intent of capturing the spread between the two, thus creating market liquidity.
Security Futures Contract
A legally binding agreement between two parties to purchase or sell in the future a specified number of shares of a security (such as common stock, an ETF or an ADR) or a narrow based security index, at a specified price.
Segregated Account
A special account used to hold and separate customers' assets from those of the broker or firm.
Self-Regulatory Organization (SRO)
Self-regulatory organizations (i.e., the futures exchanges and National Futures Association) enforce minimum financial and sales practice requirements for their members.
Settlement Price
1) The daily price that the clearing organization uses to mark open positions to market for determining profit and loss and margin calls. 2) The price at which open cash contracts are settled on the last trading day and open physical contracts are invoiced for delivery.
Sharpe Ratio
A measure of risk-adjusted performance that indicates the level of excess return per unit of risk. In the calculation of Sharpe ratio, excess return is the return over and above the short-term risk free rate of return and this figure is divided by the risk, which is represented by the annualized volatility or standard deviation. In summary the Sharpe Ratio is equal to compound annual rate of return minus rate of return on a risk-free investment divided by the annualized monthly standard deviation. The greater the Sharpe ratio the greater the risk-adjusted return.
Short
1) The selling side of an open futures contract. 2) A person who has sold futures contracts that are still open.
Short Selling
Selling securities that are borrowed rather than owned in the expectation of buying them back at a cheaper price. Short Selling involves the sale of a security not owned by the seller, a technique used to take advantage of an anticipated price decline. To make a short sale, the seller borrows securities from a third party in order to make delivery to the purchaser. The seller returns the borrowed securities to the lender by purchasing the securities in the open market. If the seller can buy that stock back at a lower price, a profit results. If the price rises, however, a loss occurs. A short seller must generally pledge other securities or cash with the lender in an amount equal to the market price of the borrowed securities. This deposit may be increased or decreased in response to changes in the market price of the borrowed securities.
Short the Basis
The purchase of futures as a hedge against a commitment to sell in the cash or spot markets.
Slippage
The difference between the sample or target price for buying or selling an asset and the actual price at which the transaction takes place.
Sortino Ratio
A measure of risk-adjusted performance that indicates the level of excess return per unit of downside risk. It differs from the Sharpe ratio in that it recognizes investors' preference for upside ('good') over downside ('bad') volatility and uses a measure of 'bad' volatility as provided by semi-deviation - the annualized standard deviation of the returns that fall below a target return, say the risk free rate.
Speculating
Buying and selling futures contracts with the hope of profiting from anticipated price movements.
Speculative Bubble
A rapid run-up in prices caused by excessive buying that is unrelated to any of the basic, underlying factors affecting the supply or demand for a commodity or other asset. Speculative bubbles are usually associated with a bandwagon effect in which speculators rush to buy the commodity (in the case of futures, to take positions) before the price trend ends, and an even greater rush to sell the commodity (unwind positions) when prices reverse.
Spread
1) Holding a long position in one futures contract while holding a short position in a related contract or contract month in an attempt to profit from an anticipated price movement in the relationship between the two contracts. 2) The price difference between two futures contracts or contract months.
Standard Deviation
A widely used measurement of risk usually used to represent volatility derived by calculating the square root of the variance of the returns of an investment from their mean.
Sterling Ratio
This ratio is also a comparison of historical reward and risk and was developed by Deane Sterling Jones. The Sterling Ratio is equal to the average annual rate of return for the past three calendar years divided by the average of the maximum annual drawdown in each of those three years plus 10%.
Stop Limit Order
An order that becomes a Limit Order when the market trades at a specific price. The order can only be filled at the stop limit price or better.
Stop Loss Order
An order that becomes a Market Order when the market trades at a specified price. The order will be filled at whatever price the market is trading at. Also called a stop order.
Strangle
An option position consisting of the purchase of put and call options having the same expiration date, but different strike prices.
Strategy
The particular investment process employed by a manager in the application of an investment style.
Structured Product
Typically provides principal protection, invests across a range of styles and managers, provides increased investment exposure and requires a high level of structuring expertise with respect to blending investment approaches, financing, liquidity and risk management.
Style
A generic investment approach, such as equity hedge and long/short, event driven, arbitrage, global macro, fund of funds, that has developed as a result of numerous managers aiming to exploit a particular type of market inefficiency, sharing a broadly similar conceptual understanding of that inefficiency, and employing a broadly similar investment methodology in order to extract value. Practitioners of a particular style will have their own investment process or strategy with unique distinguishing features and techniques.
Style Analysis
The general idea of Style Analysis is to attempt to explain, or understand, the return stream of a given fund in terms of a set of asset classes (or style factors). Specifically, for a set of n asset classes, to try and find a corresponding set of n fixed weights (or percentages). These weights are then applied to the returns of their respective asset classes, with the hope that their sum closely approximates the returns of the given fund, for each data-period in succession and over the range of data periods as a whole. At the same time, it is desired that the composition determined by the analysis reflect the actual style of the target fund.
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