Common Trading Terms and Definitions

A

Algorithmic Trading
The use of computer programs and automated systems to execute trades based on predefined rules, including price, timing, volume, or mathematical models. Also called algo trading or automated trading.

Arbitrage
The simultaneous purchase and sale of an asset in order to profit from a difference in price. It is a trade that profits by exploiting price differences of identical or similar financial instruments on different markets or in different forms.

Ask
A motion to sell (offer), indicating a willingness to sell a futures contract at a given price. The ask price is always higher than the bid price, and the difference between them is called the spread.

ATM Strategy (Advanced Trade Management)
A feature in NinjaTrader that allows traders to define and automate bracket orders — including stop losses and profit targets — as part of a predefined trade management template. ATM strategies can be applied to orders at the time of submission. Learn more about copying ATM strategies across multiple accounts.

B

Back Month
A type of futures contract that expires anytime past the current contract month. Also referred to as a deferred month or far month contract.

Backtest
The process of testing a trading strategy against historical market data to evaluate how it would have performed. Backtesting helps traders assess the viability of a strategy before risking real capital.

Backwardation
A market condition in which the futures price of a commodity is lower than the current spot price. Backwardation typically occurs when near-term demand exceeds supply, making immediate delivery more valuable than future delivery.

Basis
The difference between the current cash (spot) price and the futures price of the same commodity. The basis is influenced by storage costs, interest rates, and supply and demand conditions. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.

Bear
One who expects prices to decline.

Bear Market
A market in which prices are declining over a sustained period.

Bid
A motion to buy (purchase price), indicating a willingness to buy a futures contract at a given price.

Bracket Order
A group of related orders that include an entry order along with a predefined stop loss and profit target. When the entry order fills, the stop loss and profit target orders are automatically submitted. If one side fills, the other is canceled (OCO).

Broker
An individual or firm that arranges transactions between a buyer and a seller and receives commissions when the deal is executed. In futures trading, this may refer to a Floor Broker who executes orders on the trading floor, an Account Executive who deals with customers, or a Futures Commission Merchant (FCM).

Bull
One who expects prices to rise.

Bull Market
A market in which prices are rising over a sustained period.

C

Candlestick Chart
A type of price chart that displays the open, high, low, and close for each time period as a visual "candle." The body of the candle represents the range between the open and close, while the wicks (shadows) show the high and low. Candlestick charts are the most widely used chart type in futures trading.

Carrying Charge (Cost of Carry)
For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost necessary to buy the instrument.

Cash Commodity
An actual physical commodity someone is buying or selling, e.g., soybeans, corn, gold, silver, Treasury bonds, etc. Also referred to as actuals.

Cash Market
A place where people buy and sell the actual commodities — such as a grain elevator, bank, or metals dealer. Also called the spot market.

Cash Price
The price of the actual physical commodity that a futures contract is based upon.

CFTC (Commodity Futures Trading Commission)
The U.S. federal agency that regulates the futures and options markets. The CFTC's mission is to promote the integrity, resilience, and vibrancy of the derivatives markets through sound regulation.

Clearinghouse
An entity associated with a futures exchange that guarantees the performance of both parties to a futures contract. The clearinghouse becomes the buyer to every seller and the seller to every buyer, ensuring financial integrity of all trades.

CME Group
The world's largest futures exchange, formed by the merger of the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT), New York Mercantile Exchange (NYMEX), and Commodity Exchange (COMEX). CME Group operates the Globex electronic trading platform.

Commodity
An article of commerce or a product that can be used for commerce. In futures trading, commodities include agricultural products, metals, petroleum, foreign currencies, financial instruments, and indexes.

Contango
A market condition in which the futures price of a commodity is higher than the current spot price. Contango is the normal state for most markets, reflecting the cost of carry (storage, insurance, and financing) associated with holding the physical commodity over time.

Contract
The standardized unit of trading for a financial or commodity future. Each futures contract specifies the quantity, quality, delivery location, and delivery month of the underlying commodity or instrument.

Contract Month
The month in which a futures contract matures and delivery or cash settlement may take place. Also called delivery month or front month for the nearest active contract.

D

Daily Trading Limit
The maximum price range set by the exchange each day for a contract. A trading limit does not halt trading but restricts how far the price can move in a given session. Some contracts, such as equity index futures, use dynamic limits that expand during the session.

Day Order
An order that is placed for execution during only one trading session. If the order cannot be filled that day, it automatically expires at the close of the session.

Day Trade
The purchase and sale of a futures or options contract within the same trading session, ending the day with no open position (flat). Day traders aim to profit from short-term price movements without holding positions overnight.

Deferred Month
The more distant month(s) in which futures trading is taking place, as distinguished from the nearby (delivery) month. Also called back months.

Deliverable Grades
The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Also called contract grades.

Delivery
The transfer of the cash commodity from the seller of a futures contract to the buyer. Each futures exchange has specific procedures for delivery. Some futures contracts, such as stock index contracts, are cash settled rather than physically delivered.

Delivery Points
The locations and facilities designated by a futures exchange where stocks of a commodity may be delivered in fulfillment of a futures contract.

Drawdown
The peak-to-trough decline in account value during a specified period. Drawdown is a key risk metric used to evaluate trading performance and is especially important in prop firm evaluations, where exceeding a maximum drawdown limit results in account termination.

E

Electronic Trading
Trading conducted through electronic platforms rather than open outcry on a physical trading floor. Nearly all futures trading today is electronic, primarily through CME Group's Globex platform.

E-mini
Electronically traded futures contracts that represent a fraction of the value of a standard futures contract. E-mini contracts are among the most liquid futures in the world, including the E-mini S&P 500 (ES), E-mini Nasdaq 100 (NQ), E-mini Dow (YM), and E-mini Russell 2000 (RTY). See all E-mini and Micro contract specifications.

Exchange
See Futures Exchange.

F

Fill
The execution of an order. When an order is filled, it means a trade has been completed at a specified or better price. A partial fill occurs when only a portion of the order's total quantity is executed.

First Notice Day
The first day on which a notice of intent to deliver a commodity in fulfillment of a given month's futures contract can be made by the clearinghouse to a buyer. Traders who do not wish to take delivery typically exit their positions before first notice day.

Forex Futures
Exchange-traded contracts to buy or sell a specified amount of a currency on a set future date at a specified price. Also called currency futures or FX futures. Common symbols include 6E (Euro), 6B (British Pound), and 6J (Japanese Yen).

Forward Contract
A cash contract in which a seller agrees to deliver a specific commodity to a buyer at a future date. Unlike futures contracts, forward contracts are privately negotiated and not standardized or exchange-traded.

Front Month
The futures contract month with the nearest expiration date and typically the highest trading volume. Also called the nearby month or delivery month.

Futures
A term used to designate all contracts covering the purchase and sale of financial instruments or physical commodities for future delivery on a regulated exchange.

Futures Commission Merchant (FCM)
A firm or individual engaged in soliciting or accepting orders for the purchase or sale of futures contracts and who accepts money or securities to margin resulting trades. FCMs must be licensed by the CFTC and registered with the National Futures Association (NFA).

Futures Contract
A legally binding agreement made on a futures exchange to buy or sell a commodity or financial instrument at a future date. Futures contracts are standardized according to quality, quantity, delivery time, and location.

Futures Exchange
A regulated marketplace where buyers and sellers meet to trade futures and options on futures contracts. Major exchanges include CME Group (CME, CBOT, NYMEX, COMEX), ICE Futures, and Cboe Futures Exchange (CFE).

G

Gap
A price range on a chart where no trading occurred between consecutive bars or sessions. Gaps typically appear between one session's close and the next session's open, often caused by after-hours news, economic data releases, or significant shifts in sentiment.

Globex
CME Group's electronic trading platform, operating nearly 24 hours a day, five days a week. Globex handles the vast majority of all CME Group futures and options volume.

Good Till Canceled (GTC)
An order that remains active until it is either filled or explicitly canceled by the trader. Unlike a day order, a GTC order does not expire at the end of the trading session.

H

Hedge
The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Hedging usually involves taking opposite positions in the cash market and futures market simultaneously to reduce price risk.

Hedger
An individual or company that uses futures markets to offset the risk of adverse price changes in a commodity they produce, process, or consume. Hedgers include farmers, manufacturers, financial institutions, and exporters.

I

Initial Margin
The minimum deposit required to establish a new futures or options position. Initial margin amounts differ by contract and are set by the exchange, though brokers may require higher amounts. Also called initial performance bond.

Intraday
Occurring within a single trading session. Intraday trading refers to opening and closing positions within the same day, and intraday charts display price action at intervals shorter than one day (such as 1-minute, 5-minute, or 15-minute charts).

L

Last Trading Day
The final day when trading may occur in a given futures or options contract month. Positions still open at the end of the last trading day must be settled by delivery or cash settlement.

Leverage
The ability to control a large dollar amount of a commodity or financial instrument with a comparatively small amount of capital (margin). Leverage amplifies both potential profits and potential losses. Read our guide on how to use leverage safely and effectively.

Limit Move
A price movement equal to the daily trading limit set by the exchange. A contract that reaches its limit up or limit down may temporarily halt or restrict trading. See Daily Trading Limit.

Limit Order
An order to buy or sell a futures contract at a specified price or better. A buy limit order executes at the limit price or lower; a sell limit order executes at the limit price or higher. Limit orders guarantee price but not execution.

Liquid / Liquidity
A characteristic of a market with enough volume and participants to allow large transactions without a substantial change in price. High liquidity means tighter bid-ask spreads and easier order execution.

Liquidation
Any transaction that offsets or closes out an existing futures position. Selling to close a long position or buying to close a short position.

Long
A market position established by buying a futures contract, obligating the holder to accept delivery (or offset before expiration). A trader who is "long" profits when prices rise.

Long Hedge
The purchase of a futures contract in anticipation of an actual purchase in the cash market. Used by processors or end users as protection against rising prices.

M

Maintenance Margin
The minimum account value required to continue holding an existing futures position. If an account falls below the maintenance margin, a margin call is issued requiring the account to be restored to the full initial margin level. Also called maintenance performance bond.

Margin
See Initial Margin, Maintenance Margin, and Performance Bond.

Margin Call
A demand from a brokerage firm to a customer to deposit additional funds to bring the account up to the required initial margin level. This occurs when the account value drops below the maintenance margin due to adverse price movements. Failure to meet a margin call may result in position liquidation.

Mark-to-Market
The daily accounting process that adjusts trading accounts to reflect the current market value of open positions. Profits are credited and losses are debited at the end of each trading session, ensuring all participants maintain adequate margin.

Market Order
An order to buy or sell a futures contract immediately at the best available price. Market orders guarantee execution but not a specific price.

Market-If-Touched (MIT) Order
A price order that automatically becomes a market order when the specified trigger price is reached. A buy MIT is placed below the current market price; a sell MIT is placed above.

Micro Futures
Futures contracts sized at one-tenth of their standard E-mini counterparts, introduced by CME Group in 2019. Micro contracts allow traders to access the same markets with significantly less capital and risk per contract. Common micro contracts include Micro E-mini S&P 500 (MES), Micro E-mini Nasdaq 100 (MNQ), Micro E-mini Dow (MYM), Micro E-mini Russell 2000 (M2K), Micro Gold (MGC), and Micro Crude Oil (MCL).

N

Nearby Month
The futures contract month closest to expiration. Also called the front month or spot month. The nearby month typically has the highest volume and liquidity.

NFA (National Futures Association)
The self-regulatory organization for the U.S. futures industry. The NFA develops rules, programs, and services to safeguard market integrity and protect investors.

O

Offer
An indication of willingness to sell a futures contract at a given price. Also called the ask. See Bid.

Offset
Taking a second futures or options position opposite to the initial position — selling if you previously bought, or buying if you previously sold — to close the position. Also called liquidation.

One Cancels Other (OCO)
A pair of orders linked together so that when one order fills, the other is automatically canceled. OCO orders are commonly used to pair stop loss and profit target orders on an existing position.

Open Interest
The total number of outstanding futures contracts that have not been offset, delivered, or expired. Open interest measures market participation and is often used alongside volume to gauge the strength of a price trend.

Open Order
An order to a broker that remains active until it is either canceled or executed. Also called a Good Till Canceled (GTC) order.

Open Outcry
The traditional method of public auction for making verbal bids and offers in the trading pits of futures exchanges. While largely replaced by electronic trading, some exchanges still maintain open outcry sessions for certain products.

Options on Futures
Contracts that give the buyer the right, but not the obligation, to buy (call) or sell (put) a specific futures contract at a specified price (strike price) on or before an expiration date. The seller (writer) of the option is obligated to fulfill the contract if the buyer exercises the option.

P

Paper Trading
Simulated trading using virtual money to practice strategies and learn market mechanics without risking real capital. Most modern trading platforms, including NinjaTrader, offer built-in simulation modes with real-time market data. Also called sim trading or demo trading. Download NinjaTrader for free access to a real-time trading simulator.

Performance Bond
Funds deposited as collateral to guarantee performance on a futures contract. The performance bond (commonly called margin) helps ensure the financial integrity of the clearing system. See Initial Margin and Maintenance Margin.

Pit
A specially constructed area on the trading floor of an exchange where open outcry trading is conducted. With the transition to electronic trading, most pits have been closed.

Point Value
The dollar value of a one-point move in a futures contract. For example, the E-mini S&P 500 (ES) has a point value of $50, meaning a one-point move equals $50 per contract. Point value is determined by the contract multiplier.

Position
A market commitment. A buyer of a futures contract holds a long position; a seller holds a short position. Being "flat" means having no open position.

Price Discovery
The process by which buyers and sellers interact to determine the market price of a commodity or financial instrument. Futures markets are considered primary venues for price discovery because they aggregate global supply and demand information.

Prop Firm (Proprietary Trading Firm)
A company that provides traders with funded trading accounts in exchange for a share of the profits. Traders typically must pass an evaluation (demonstrating consistent profitability within risk limits) before receiving a funded account. Popular futures prop firms include Apex Trader Funding, TopStep, and others. Learn how a trade copier for prop firms can help scale funded accounts.

R

Risk-to-Reward Ratio (R:R)
A measure comparing the potential loss (distance to stop loss) against the potential profit (distance to profit target) on a trade. A 1:3 R:R ratio means risking $1 for every $3 of potential profit. Many traders use minimum R:R thresholds as part of their trading plan.

Rollover
The process of closing a position in an expiring futures contract and simultaneously opening the same position in the next active contract month. Traders roll over to avoid delivery obligations and maintain market exposure. Most index futures (ES, NQ, YM, RTY) roll quarterly, while energy and agricultural contracts roll monthly. See our full guide on futures rollover and expiration.

S

Scalp
To trade for small, quick gains. Scalping involves establishing and liquidating a position rapidly, usually within minutes or even seconds, aiming to capture small price movements repeatedly.

Settlement Price
The official price determined by the exchange at the end of each trading session. Settlement prices are used to calculate daily mark-to-market gains and losses, margin requirements, and the next session's price limits. Also called the settle or closing price.

Short
A market position established by selling a futures contract, obligating the holder to make delivery (or offset before expiration). A trader who is "short" profits when prices fall.

Slippage
The difference between the expected price of a trade and the actual price at which it is executed. Slippage commonly occurs during periods of high volatility, low liquidity, or when using market orders. It can be positive (better than expected) or negative (worse than expected).

SOFR (Secured Overnight Financing Rate)
A benchmark interest rate that replaced LIBOR (London Interbank Offered Rate) as the primary reference rate for U.S. dollar-denominated derivatives. SOFR futures (SR3) are traded on CME Group and have become one of the most actively traded interest rate products.

Speculator
A market participant who attempts to profit from anticipating price changes by buying and selling futures contracts. Unlike hedgers, speculators do not have an underlying commercial interest in the commodity. Speculators provide liquidity to the market and are essential to the price discovery process.

Spot
The market for immediate delivery of and payment for a commodity or financial instrument. Also called the cash market.

Spread
The price difference between two related markets or commodities. Also refers to the difference between the bid and ask prices of a contract (the bid-ask spread). In trading strategy, a spread trade involves simultaneously buying and selling related contracts to profit from changes in the price difference.

Stop Order (Stop Loss)
An order that becomes a market order when a specified price (the stop price) is reached. A buy stop is placed above the current price; a sell stop is placed below. Stop orders are commonly used to limit losses on existing positions or to enter positions on breakouts.

Stop Limit Order
A variation of a stop order that becomes a limit order (rather than a market order) when the stop price is reached. This gives the trader price protection but does not guarantee execution if the market moves past the limit price.

Supply and Demand Zones
Price levels on a chart where significant buying (demand) or selling (supply) activity has previously occurred, causing price to reverse direction. Traders use these zones to identify potential entry and exit points, anticipating that price may react similarly when it returns to these levels. Read our guide on supply and demand trading.

T

Tick
The smallest increment of price movement possible in trading a given futures contract. Each contract has a defined tick size and tick value. For example, the E-mini S&P 500 (ES) has a tick size of 0.25 points and a tick value of $12.50.

Tick Value
The dollar amount gained or lost per contract for each minimum price movement (tick). Tick values vary by contract and are essential for calculating risk, position sizing, and profit targets. For a complete reference, see our futures contract specifications page.

Trailing Stop
A stop order that automatically adjusts as the market moves in the trader's favor. A trailing stop on a long position moves up as the price rises but does not move down if the price falls, locking in profits while allowing the position to continue running.

Trade Copier
Software that automatically replicates trades from one account (the lead) to one or more follower accounts. Trade copiers are used by traders managing multiple prop firm accounts, family accounts, or portfolio strategies across different brokers. Advanced copiers handle position sizing, ATM strategy brackets, and cross-broker compatibility. See our NinjaTrader trade copier for an example of a full-featured multi-account copier.

V

Volatility
A statistical measure of the rate and magnitude of price changes in a market over a given period. Higher volatility means larger and more frequent price swings. The CBOE Volatility Index (VIX) is a widely followed measure of expected volatility in the S&P 500 index.

Volume
The total number of contracts traded during a given period. Volume is a measure of market activity and liquidity. Rising volume during a price trend is generally considered confirmation of the trend's strength.