FREE LEARNING REFERENCE

Futures glossary.

58 terms explained without the jargon. This reference complements the seven-stage free Academy.

REFERENCE / A–Z

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Official contract rules and definitions should always be verified from primary sources.

Average true range (ATR)

A historical volatility measure that averages ranges accounting for gaps. It describes recent movement, not direction or a maximum future move.

Backtest

A simulation of a defined strategy using historical observations and explicit assumptions. Its usefulness depends on data quality, correct timing and realistic costs.

Backwardation

A term structure in which a later-dated futures price is below a nearer-dated futures price. It does not by itself forecast where prices will move.

Basis

The difference between a spot price and a related futures price. Basis risk matters when a hedge does not precisely track the exposure being protected.

Bid–ask spread

The difference between the highest quoted buying price and the lowest quoted selling price. It can contribute to execution costs.

Broker margin

Collateral a broker requires to open or maintain a futures position. It is not the most an account can lose.

Candlestick

A chart bar showing an interval's open, high, low and close. It does not reveal the exact order of events inside the bar.

Cash settlement

A contract settlement method that resolves the final value through a cash amount rather than delivery of an underlying asset.

Clearinghouse

A central clearing organization that stands between counterparties for cleared exchange-traded futures and manages specified counterparty obligations and risk.

Contango

A term structure in which a later-dated futures price exceeds a nearer-dated futures price. Storage, financing and other conditions can contribute.

Contract multiplier

A number specified by the exchange that converts a futures price change into a dollar change per contract.

Correlation

A statistic describing the degree to which two series move together in a sample. Correlation can change and is not the same as causation.

Daily loss limit

A predefined rule that restricts further trading or permitted loss over a day. Enforcement and accounting definitions vary by account.

Drawdown

The decline in account equity from a previous peak to a later trough, expressed in dollars or as a percentage of the peak.

Edge

A hypothesized repeatable advantage after realistic costs and risks. Positive historical results do not establish that an edge will persist.

End-of-day drawdown

An account or strategy loss measure evaluated using end-of-day observations. It can overlook intraday peaks and troughs.

Entry rule

An observable, written condition specifying when and how a position would be opened.

Equity

An account's financial value after incorporating applicable balances and open-position P&L under its accounting convention.

Exchange

An organized trading venue that standardizes listed contracts and operates under a regulatory framework.

Expectancy

Average estimated profit or loss per trade: win probability × average win minus loss probability × average loss and costs.

Expiration

The date or process by which trading ends or a contract approaches final settlement. Contract-specific obligations must be checked.

Fill

The execution of an order, in whole or in part, at a specific price and quantity.

Forward contract

A negotiated bilateral agreement for future delivery or settlement, commonly customized rather than standardized on a futures exchange.

Futures contract

An exchange-traded standardized agreement that establishes exposure to a defined underlying and settlement terms at a future date.

Hedge

A position intended to offset some price exposure elsewhere in a business or portfolio. Hedging may introduce basis, liquidity or cash-flow risk.

In-sample data

Historical observations used to develop, select or tune a strategy. Performance on this data is especially vulnerable to overfitting.

Intraday trailing drawdown

A loss constraint whose reference peak may update during the trading day. The exact rule must be verified with the account provider.

Leverage

Exposure to gains and losses that is large relative to the collateral or capital initially committed.

Limit order

An order that executes at its limit price or better if a matching opportunity occurs. It may not fill.

Liquidity

The ability to transact without substantial price impact under particular market conditions; affected by spread and depth.

Long position

A position generally benefiting when its contract price rises, before costs and other exposures.

Look-ahead bias

A research error that uses information unavailable at the time a historical decision would have been made.

Margin call

A demand to provide additional collateral or reduce exposure when an account fails to satisfy applicable requirements.

Mark to market

The process of adjusting an account's value or cash flows to reflect current market prices.

Micro futures

Smaller versions of certain futures contracts, often one-tenth the corresponding E-mini size, allowing finer position sizing.

Notional exposure

The contract multiplier times a reference price, or the analogous total value represented by a position.

OHLC

Open, high, low and close prices for a specified observation interval.

Open interest

The number of outstanding contracts that have not yet been closed, delivered or settled.

Out-of-sample data

Observations deliberately withheld from strategy development and used for validation. Repeated optimization can contaminate the holdout.

Overfitting

Building a model or strategy that captures noise and specifics of historical data rather than a repeatable relationship.

Point value

The dollar impact of a one-point price change per contract, defined by the contract multiplier.

Position sizing

Choosing the quantity of contracts to hold according to exposure, proposed stop distance, budget and constraints.

Prop evaluation

A paid or otherwise contracted trader evaluation with provider-specific rules. It does not automatically constitute employment or a live brokerage account.

R-multiple

A result expressed relative to a planned risk unit, such as a $100 planned loss risk. A +2R gain would be $200 before relevant adjustments.

Risk of ruin

A modeled probability of depleting capital or reaching a defined failure threshold under specified statistical and position-sizing assumptions.

Rollover

Closing or transitioning an expiring futures position and establishing exposure in a later contract month.

Short position

A position generally benefiting when its contract price falls, before costs and other exposures.

Slippage

The difference between a planned or reference order price and the actual execution price, or an explicit allowance for that difference.

Stop-limit order

A triggered order that becomes a limit order. It constrains eligible execution prices but may remain unfilled.

Stop-market order

A triggered order that becomes a market order. Its eventual execution price can be worse than the stop trigger.

Strategy hypothesis

A claim about a repeatable trading outcome stated precisely enough to test and potentially reject.

Tick size

The minimum permitted price increment of a particular futures contract.

Tick value

The cash effect of one minimum price increment per contract, equal to tick size times contract multiplier.

Timeframe

The sampling interval used to create bars or calculate a statistic. Different timeframes can show different market structure.

Trading plan

A dated written set of instrument, session, entry, exit, risk, evaluation and review rules.

Volume

The number of contracts traded during a period, distinct from open interest.

VWAP

Volume-weighted average price over a defined interval, computed from transaction prices and volumes.

Walk-forward validation

A repeated procedure in which models are trained or selected using an earlier window and evaluated on subsequent data.

Showing all 58 terms.

Definitions are educational summaries, not substitutes for current official exchange, broker, or provider documents. CME Group education ↗ · CFTC investor education ↗