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Saturday
Jun292013

Emini Futures Trading Terms And Definitions

(QQQ)(DIA)(SPY)(GLD)(ZNGA)

Online Dictionary For Emini Futures |

Terminology - Slang - Definitions


The CFRN Emini Online Dictionary is a work in progress. Every industry over time develops its own language. A group of words, , phrases and slang, understood only by those "in the business". Often the words do have meaning to civilians (non-trading carbon based life forms), just a much different meaning than what the trader is attempting to convey.

We call it a work in progress because like any good dictionary, it is will continue to grow. Even Webster, the one we grew up with, adds new words every year. Not only are new words added, often new definitions are added to existing words like Underwater.

Here's a sample of Webster's new additions for 2012 - 

  • copernicum
  • man cave
  • gastropub
  • systemic risk
  • cloud computing
  • sexting
  • earworm
  • mash-up
  • bucket list
  • energy drink
  • game changer

 

User Edited Emini Futures Trading Online Dictionary

As the name suggests, to have a word considered for addition, use the comment section below or email us, dictionary@cfrn.net. This list will be moved shortly to its own web page and perhaps even to its own web site as it grows. If you wish to make your submission anonymous, say so. Otherwise, we will include your name alongside the date added. Please provide a definition along with the word.

 

A

Algorithm  -  a set of rules typically expressed as a mathematical equation and most often the basis of an automated trading strategy or system (see high frequency trading)

Alpha - Compares the volatility of a fund or security against the performance of a benchmark index. If a fund is bench marked against the S&P 500 and for a given time period ( monthly - quarterly - annually), outperforms the S&P by 3%, the fund would be said to have an Alpha of 3%. When you see a fund which touts a high Alpha, this is the most important risk factor, however, it must be balanced against Beta - Standard Deviation - Sharpe Ratio and R Squared. A high Alpha alone, is not considered sufficient. If you are trading Emini Futures, you are actually trading the index itself.

Analyst - Works for an investment bank in many cases and will be responsible for assessing valuations, creating projections, gathering data and crunching numbers for "deals" to be done by higher level investment bankers. The Analyst tends to be the work horse. Because the work product of an Analyst is numbers driven and those numbers are published after the fact, he will often upgrade a stock at the top or downgrade it at the bottom.  Many traders take a contrarian position based on the analysts work. This term may also be used for someone in the media who offers his or her "opinion" based on a variety of things beyond the numbers, such as a "gut feeling" or "whispers on the street".

Ask - The price at which an Emini Contract or any other asset from gold to a used car can be bought at. Whenever you see a For Sale sign with a price, the price listed is the "Ask". In Emin Trading it is also referred to as the Offer. When you look at the DOM on your trading platform, there are two columns. The column on the left is the Bid, the column on the right is the Ask. If I want to sell 20 S&P 500 Emini Contracts @ 1599, the Ask or Offer is "10 @ $1599". Keep in mind, when trading the E-mini, you do not have to own the contracts to sell them. This activity is called "shorting the market". Perfectly legal and one of the things that makes Emini Futures Trading so attractive as there is no "Up-Tick" rule.

 

B

Backwardation - A situation where the price of a futures contract for a tangible product (gold, soybeans, oil etc..) is somehow lower than what the anticipated price of the underlying commodity will be trading at on the spot market when the contract expires. If gold is trading at $1,300 an ounce for the September Contract and the expected spot price in September is only $1,200 an ounce, you have backwardation. As a result, approaching expiration the futures contract will trend to meet the spot price. This situation is the polar opposite of Contango. Because Eminis have no spot price, you will only see this in futures which have an underlying physical commodity.

Basis Point - Unit of measure equal to 0.01 prcentage points. A 30 year U.S. Treasury Bond offering a yield of 300 basis points translates to a yield of 3% (300 X 0.01). While this term is not used when trading the stock indices via Emini Futures, it is used with intruments which very much do impact the Emini Trader - 

  • Bond Yields
  • Credit Default Swaps
  • Interest Rate Changes
  • etc...

Bear -  Emini trader, investor, analyst, bank, hedge fund, or taxi cab driver, who believes the price of the overall market or any single component or sectors in the market, are going to fall in price. The reason for the decline in not important. Da' Bears, simply believe lower prices are coming. They are considered to be the pessimists of the market. In Emini Futures Trading this is not always the case. An Emini Trader might be long off the open and as price reaches his target he exits the market because he also believes lower price are coming. After a pullback or retracement (same thing), the same trader many now believe prices will head higher. He is now "da' bull". The true bears are often referred to as "perma-bears". These are the true pessimists and they are always on the lookout  for lower prices. One very famous perma-bear is Robert Prechter. He has managed to build a career on being bearish which is hard to imagine since the overall market has been in an incredible uptrend since its inception. The Bear is the polar opposite of the Bull. In nature, when the Bear attacks, he raises his claws and comes down on his opponent. (see Bull definition for a long term chart of the market)

Beta - Indicates the volatility or risk of any stock, fund or asset when compared to the greater market at large. Beta is determined through a technical analysis technique called Regression and is one of the Big Five risk analysis tools used by analysts which include Alpha - Standard Deviation - Sharpe Ratio and R Squared. Beta is used in capital asset pricing models to show how the asset compares to the overall market. A stock, fund, etc.. with a Beta of 2 is performing at double the rate of the overall maket. Along with the potential for greater returns comes greater risk as well. A high Beta alone though, is not enough. It must be balanced along with the other 4.

While Beta is not often discussed amongst Emini Traders, try looking up the Beta Co-efficient of all 30 Dow stocks at any time, add them up and divide by 30. You have just benchamrked yourself if you trade the Dow Jones YM Emini Futures. Tracking this number over time may prove valuable to the Emini Trader as it easily allows you to assess when greater risk and opportunity are at hand. 

 

TO BE CONTINUED...

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Emini Futures Trading Online Dictionary

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Reader Comments (2)

This is very useful post.It is a good dictionary because of continous growth.In this dictionary adds new words per year.

Oct 21, 2013 at 4:47 | Unregistered CommenterWilson Jhon

The "Best" emini trading system indeed! I have watched Michael trade the ES, Crude Oil, Gold, Soybeans, Copper, the russell 2000 etc etc. usi9ng the simple trade setup on the same time frame every day.. amazing trading system

Nov 20, 2013 at 15:23 | Unregistered CommenterPamela B

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