Here you can become familiar with the language often used in the commodity industry, nanoscience and nanotechnology to help you gain a basic understanding of the “nomenclature” used and as interpreted by ourselves. The glossary includes many terms relevant in the context of trading on INSCX aswell as those common to Fundamental and Technical Analysis. For general descriptions pertaining to the nomenclature associated with Nanomaterials, exchange users are referred to the publications provided by the British Standards Institute.
Definitions provided by INSCX exchange are not intended to suggest the correct legal significance or exact meaning. Rather they have been collected from several sources to help in your understanding of commodity trading generally augmented by our interpretation of the terminology cited in the context of trade on INSCX .
Glossary
In the case of nanomaterials INSCX had adopted the nanomaterials SHE (Safety, Health and Environment) good practices protocol devised by the UK-based Institute of Occupational Medicine (IOM) pertaining to supply, handling and use of engineered nanomaterials (ENMs). On transactions relating to ENMs a 1% levy is applied for SHE.
An agency trade is a trade instructed through the Specialist merchant for execution at best possible price in-line with the customer instruction to trade.
An agent of the Exchange (often referred to as a Merchant) is a business entity authorised by INSCX as a non-commercial member to accept, place and execute orders on behalf of customers through the trading platform.
This is the process where a trade dispute is referred for resolution. The Exchange Registrar acts as the final arbitrary before formal litigation in law. Trade disputes are first referred to the Specialist Merchant of INSCX, but should the dispute remain in impasse, the complaint can then be referred then to the Registrar. Hearings before the Registrar are subject to costs awarded against the offending counterparty to a disputed trade. However, should the Registrar find no basis for complaint costs are borne by the instigator of the complaint.
A motion to sell. The same as offer. Indicates a willingness to sell a listed contract at a given price.
A trade executed (filled) on the exchange is described as a Bargain.
All Approved Agent firms (Merchants including the Specialist Merchant) on INSCX exchange are obligated to deliver best execution (Best available price) on filling a customer instruction.
The price that market participants are willing to pay. The opposite of Ask and/or Offer.
A market participant who expects a decline in prices. The opposite of a “Bull.” Remember a Bear attacks by striking his paw downward.
A market in which prices are falling. Often referred to as a “Bearish” market.
A market participant who expects prices to rise. The opposite of a “Bear”. Remember a Bull attacks by thrusting his horns upward.
A market in which prices are rising. Often referred to as a “Bullish” market.
For physical commodities listed on INSCX exchange for trade on a forward price/delivery basis the cost of storage, insurance and finance charges incurred by holding the physical commodity is quoted in the price displayed.
INSCX is a cash market meaning all trades executed through the exchange are where a purchase is made on a cash (cleared funds) basis. The Exchange does not accept instruments such as a Letter of Credit as a means of payment given their cost and inefficiency as a medium of payment, although other instruments such as a drawn bill of exchange are accepted. (See Payment methods)
Cash or Spot price means the price quoted for immediate delivery.
Clearing system operated by INSCX exchange distinct from the control of any Member firm where funds deposited by a buyer or pledged in lieu of purchases are stored for release when the purchase is executed favour the seller, or returned to the buyer in the event of no trade being agreed. All funds held by INSCX for trade purposes are deposited with a regulated UK bank. (See Settlement)
Maximum trading range set by the exchange each day for each material listed for trade. When a material price moves either side of the maximum permitted range, trading is suspended through instigation of the Circuit Breaker to be resumed at the discretion of the exchange Specialist Merchant.
All nanomaterials supplied for physical delivery through INSCX are subject to independent measurement and characterisation provided under contract to INSCX exchange by various independent inspection agencies. Measurement and Characterisation standards and procedures are detailed in the particulars of individual nanomaterials traded on the exchange. The cost of characterisation is borne by the seller.
See Arbitration
The term "Commodity" is used by INSCX to denote and material listed for trade on the Exchange in a general context regardless of whether the "commodity" is supplied by multiple or a single producer member of the Exchange. Furthermore, the term "commodity" is held to refer to an article of commerce or a product that can be used for commerce. In a narrow sense, products traded on a commodity exchange are so termed as commodities. The types of commodities include agricultural products, metals, petroleum, metals, powders, materials, foreign currencies, and financial instruments to name a few.
Fees charged by a member firm of INSCX (Merchant) accepting instruction from a customer. Commissions are capped at a maximum level of 1.5% of the financial consideration of the transaction concerned.
Conduct of Business (COB) are protocols enforced on all Merchant members of the Exchange designed to ensure merchants acts in the best interests of the customer from whom they have received an instruction to buy or sell a commodity listed on the Exchange.
Typically meaning a unit of trading for a financial or commodity future. However, on INSCX a contract refers only to either a bilateral agreement between the parties (buyer and seller) to trade a commodity listed by the Exchange, or a trade executed on behalf of a buyer and seller where a Merchant member of the Exchange acts as a counterparty, buying from the seller, match-selling to the buyer.
Specific to Polymer trading on INSCX, the opposite of a Spot or Cash price where the price quoted obligates a larger quantity delivery.
Document issued to counterparties at the point of trade by a Merchant member of INSCX confirming particulars to a bargain where they (the Merchant) has acted as an Agent.
Party to a transaction (buyer, seller or Agent).
A contrarian is an trading member of the Exchange (producer, end-user, trader) holding a price view against the prevailing market trend. A contrarian may aim to profit from positioning the opposite to the prevailing trend price trend, possibly anticipating a change in price direction based on momentum indicators or other analysis tools.
The term "Covered" relates to a forward delivery trading contract on INSCX permitted for trade in two distinct variants, one producers (Tier I) and another (Tier Ia) for professional traders. A forward Tier I allows a producer to sell forward from existing stocks. The forward is "covered" by the underlying units of the physical polymer stored in a facility owned by the producer and approved by the Exchange. The underlying units are grades specific to the producer. A Tier Ia is also supported by underlying units of the polymer and permitted for trade ONLY by professional traders initially. Unlike the I variant, a Ia contract is NOT grade specific and the underlying units of the polymer supportingn the contract are held in a warehouse approved by the Exchange. The purpose of Tier Ia contracts are to enable professional traders (using their own funds as opposed to client funds) to trade long and/or short for gain in polymer categories without the necessity of taking on-site physical delivery and to enable a more liquid forward delivery market. These contracts are "Covered" are the opposite of Naked/Uncovered Forward contract types also permitted by INSCX for trading by producers only. (See Tier II Uncovered "Naked" Forward)
A member/user of INSCX holding a material interest in the production/supply or use of a listed commodity, the opposite to a Non-Commercial user.
A trade practice where the Specialist Merchant executes a buy/sell between two parties at the same price in-line with the mutual preferences of the instructing buyer and seller.
An order that is placed for execution during only one trading session. Referred to as “GTD” (Good for Day). If the order cannot be executed (filled) that day, it automatically expires at the close of the trading session.
The more distant month in which forward trading for physical delivery is taking place, as distinguished from the nearby (delivery) month. For example a 3 month forward trade agreed in January will have as its deferred month March.
The grade or specification of material acceptable for delivery against a trade executed through the Exchange both for spot and forward trade types.
A specific series of months where delivery of the commodity will occur in lieu of an agreed forward trade.
The identity of any counterparty to a trade executed or reported to INSCX via the Specialist Merchant is NOT EVER disclosed to a third party or to the general market unless under one circumstance; Where prior authority is obtained in law INSCX exchange will disclosure to the authorized party the identity of counterparty to the bargain the subject of formal investigation. Under normal circumstances all bargains will be reported to the market and relevant authorities in nominee format citing commodity, price and volume only. Note: The commodity cited will be the Chemical family as opposed to an individual producer brand.
Fees charged by INSCX for a trade executed or reported through the live trade platform disclosed in advance of any trade to the prospective buyer and seller. Not to be confused with other exchange fees such as membership subscriptions.
The price at which a trade has been executed.
A term used by the Specialist Merchant to denote a trade agreement between a buyer or seller or both. Also often referred to as a Trade Fill.
A term used by the Specialist Merchant to denote a trade agreement between a buyer or seller or both. Also often referred to as an execution.
A customer order that is a price limit order that must be filled within a defined period or cancelled. A Fill or Kill can also be applied at the discretion of the exchange specialist upon issuance of notification during an auction process involving a tender mechanism where there is an extended stalemate beyond the secondary time extension permitted. Fill or Kill permits one participant to fill the order on a best price basis. See Tenders
A term used to denote whether a buy or sell instruction is binding on execution on a buyer or seller on the order being transmitted by either party or both to the Specialist Merchant.
The price where the bid or ask price is binding in the quantity stated on the live trade platform for the commodity so concerned.
The opposite of Cash or Spot meaning a commodity in which a seller agrees to deliver a specific commodity to a buyer sometime in the future over a series of months. Forward contracts, in contrast to futures contracts, are not standardized to a specific delivery date but rather to a fixed series of months from the date of the trade being agreed. Also, unlike commodity futures contracts, forward contracts on INSCX pertaining to certain commodity classes such as polymers are not marketed, or promoted as suitable for investment purposes to the general public and are both covered and uncovered. (See Tier I, Ia and II)
On INSCX forward prices relate to the supply of polymers at a fixed price over a defined term, typically, 3, 6, 9 and 12 months. These prices are displayed on the live trade platform and include all charges related to storage, financing and delivery.
The forward price premium is where there is a situation in which the spot or cash price of a commodity is lower than the forward price. This situation is often referred to as a Contango and is associated with oversupply in the commodity concerned.
The forward price discount is where there is a situation in which the spot or cash price of a commodity is higher than the forward price. The situation is often referred to as a Backwardation and associated with supply shortage in the commodity concerned.
Commodity futures contracts were created in the 1970s with the launch in America of Crude Oil futures as a response to the then oil-crisis and the requests of speculative trading forms for a less cumbersome alternative to trade in more traditional forward contracts invented in the 1800s. A commodity futures contract is a legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity sometime in the future where the underlying commodity or instrument is delivered as a last resort. Futures contracts are standardised according to the quality, quantity, and delivery time and location. Participants in futures contract trading are typically producers, end-users, speculators and investment firms. The commodity futures contracts are not to be confused with a physical delivery forward contracts that are quoted on INSCX as these involve mandatory delivery of the underlying commodity, are not marketed as investment products and follow in the tradition of forward contracts developed in the 1800s.
Futures exchanges were amalgamated into the concept of formerly purely physical delivery commodity exchanges during the 1970s. Trade on futures exchanges is a regulated, investment activity and trade in futures suitable for investment purposes as well as for physical delivery.
The Financial Services and Markets Act 2000 is an Act of the Parliament of the United Kingdom that created the Financial Services Authority (now the Financial Conduct Authority) as a regulator for insurance, investment business and banking, and the Financial Ombudsman Service to resolve disputes as a free alternative to the courts. This act governs in the context of commodity exchanges, the activities of those exchanges that permit trade in commodity futures contracts. While INSCX follows many of the practices adopted by commodity futures exchanges, it is not required to be regulated under this Act as the Exchange does not permit or promote trade for investment and/or speculative purposes.
A strategy in which trading decisions are based on global economic and political factors, that is, macroeconomic principles.
An term used to describe an buy or sell order worked by the Specialist Merchant on INSCX until it can be filled or until canceled. This is the opposite of a Good for the Day (GTD) order which remains valid only for the duration of the trading session during which it was placed.
The practice of using either a commodity futures or commodity forward contract purchase or sale to safeguard against an adverse movement in the price of the underlying commodity over a defined duration. Can involve opposite positions in the cash market and futures/forward market at the same time.
A cash deposit to the minimum value a buyer must deposit with INSCX to establish a new forward contract purchase where the trade is executed as an Agency trade by the Specialist Merchant. Initial margin amount levels differ by contract. The Specialist Merchant on INSCX sets the level of Initial Margin required in accordance with the rules set by the exchange, and it may change at any time at either the exchange’s discretion. Increases or decreases in Initial Margin levels reflect anticipated or actual changes in market volatility. Also called "Initial Performance Bond."
Also referred to as a Product. An Instrument is a term describing any commodity listed for formal trade on the exchange.
Proposal by INSCX exchange to compensate for limitations over-reliance on purely electronic trading networks delivers in a trading context. The use of next generation haptic environments will be explored by INSCX for deployment as an add-on enabling reflection of a “true” market sentiment to recreate the physical trading floor to support the electronic trading interface.
A professional class of trader who is attributed “Intermediate” status by INSCX to engage in the trading as principal for speculative gain in listed products using qualified funds. For example, such traders would be permitted trade in Covered Commodity (Tier Ia) contract types.
An Approved merchant member of INSCX who acts as an Agent to execute a customer instruction. All intermediaries are obligated to clear using the Central Clearing System so as to underwrite the financial integrity of the trade process.
The value by which an forward contract is in-the-money versus the value of the cash price.
A futures market in which futures contracts nearer to expiration versus the cash market are priced higher than those in more distant months. Also defined as a measure of backwardation, and an inverted market typically reflects a market facing a supply shortage. On INSCX where for example the price of 3 month forwards (as opposed to futures which are not listed for trade by the Exchange) moved higher than a longer duration forward, say the price of a 6 month or 9 month forward, or to a wider premium over the longer duration forward, the market would also indicate an inverted state.
A trade instruction to buy below or sell above the current market price usually placed for a defined duration.
A characteristic of a commodity market with enough interest to allow large transactions to occur without a substantial change in price following as a consequence.
A buy trade, the opposite of a short trade.
A dimension of market liquidity that refers to the ability of the market to handle large trading volumes without a significant impact on prices. Traders particularly on investment markets often study market depth to determine how and when particular orders may impact price action, and to help time the entry and exit of trades. On INSCX market depth is revealed on opening the ticket relevant to each commodity listing where the ticket displays the number, price and volume of buyer and seller interest in the particular commodity. Depth (similar to investment markets) on INSCX indicates the price points and volume of buyer/seller interest and can be used to assess both market entry points and sentiment.
An order to buy or sell transmitted to the Specialist Merchant in a specified commodity, including quantity and delivery month to be executed at the best possible prices available, as soon as possible.
A demand from the exchange to a member, or from a Merchant firm to a customer, to bring margin deposits up to a minimum level required to support the positions held. This can be done by either depositing more funds or sometimes offsetting some or all of the positions held.
Member of the Exchange are either commercial (producers and end users of listed materials) or non-commercial (organisations holding no material interest in fabricating or making use of listed materials. Each category of member is further classed as one of either Access Only or Trading, the latter permitted to trade for supply, delivery or risk purposes. Note: Risk trade is restricted to members who are classed professional traders, a sub-category of a non-commercial user of the exchange.
A variant of a commodity forward listed on INSCX restricted subject to a producer agreeing to act as the selling counterparty where the producing seller has not yet fabricated the underlying material. Note: These trades are binding on the producer and buyer agreeing to trade regardless of adverse price movement over the cycle term of the forward trade in addition to requiring posting of initial margin by the counterparty agreeing to purchase.
Procedure employed by INSCX exchange to safeguard the identity of counterparties to a trade. All trades are reported on the trade platform to the general market listing particulars such as country of origin/destination, product, price, volume and time of trade. The identity of the actual buyer and seller is withheld from the general market.
The price of a commodity which indicates a willingness to sell at a given price. Also called "Ask" (See Bid).
A procedure where a trader must declare to the Specialist Merchant where their position long held (bought and retained for gain) in a Tier Ia Covered Forward Contract exceeds a defined percentage of the daily trade volume in the commodity concerned with volume including that conducted in the cash market for the day session concerned. The declaration is made to the Specialist Merchant for open broadcast to the general market without naming the trader in the monthly open interest report.
A monthly figure released by the Specialist Merchant to the general market quoting the volume of long positions held by trading members in forward contracts.
A monthly figure released by the Specialist Merchant to the general market quoting the volume of short positions held by trading members in forward contracts.
The purpose of the Specialist Merchant releasing to the broader market volume figures associated with positions held collectively by members (long and short) in Forward Contracts is to provide means to market observers and participants to assess the levels of bearish and bullish sentiment held by the broad market in a given commodity class.
INSCX exchange imposes a limit on the % level of open interest a professional trader can hold long or short in a Tier Ia Covered Forward Contract based on the volume of the underlying commodity held in the Exchange warehouse system.
Common description for the exchange electronic communications network (ENC) where trades are executed electronically with voice-broking support enabled.
A specially constructed arena on the trading floor of some exchanges where trading in a futures contract is conducted on an open outcry basis On some exchanges the term "ring" designates the trading pit area for a commodity.
A key function of an organised exchange system, and that of INSCX is to enable greater efficiency in price discovery based on the buy and sell tolerances and volume interest generated by market participants through the exchange system itself. The generation of information about future/forward and cash market prices reflected on the live platform delivers an optimum price discovery methodology because this is where the buyers and sellers are brought together to determine the price openly but also anonymously. As in any auction process which is what an exchange is, the last price traded versus the current price quoted is considered to reflect the sum total of opinions about what price an item should be valued. This price discovery function is augmented further by enabling on INSCX users to assess price differentials between cash and forward markets, assess the input of a professional trading class, avail of technical analysis tools such as charting, access to pivot point calculations and to monitor market reports.
Refers to funds set aside for risk trading of listed Products/Instruments. INSCX does not permit risk trading or speculation from participants who do not set aside qualified funds for the purpose of risk trading. Nor does INSCX permit participants not regarded as an Intermediate, or qualified class of professional trader to conduct trade in certain products.
INSCX is a self-regulating organisation meaning we have rules compliant on exchange members in accordance with the exchange Charter and/or any statutory regulation governing the manufacture, use, application and exchange of listed commodities.
INSCX imposes certain restrictions on activities members are permitted to perform when they use the Exchange for trading purposes in the interests of ensuring we can maintain an orderly, fair and secure market for all members. These restrictions are outlined to applying members prior to their being admitted to join the Exchange.
The process employed by the Exchange to ensure delivery versus payment for a trade executed through the trade platform involving the Specialist Merchant.
The period set from agreeing a trade to when a buyer must deposit funds to secure title to the commodity. The settlement date denotes when title has passed to the buyer simultaneous with payment to the seller agreeing the trade.
A term used to describe where a member opts to sell a commodity they do not own often but not always in expectation of being able to repurchase for a lower price at a later date. INSCX imposes a number of restrictions on the practice of short selling.
The difference between the Bid and Ask prices displayed for a listed commodity.
When used in connection with delivery of commodities on futures or forward contracts, the term usually means that the party receiving the delivery notice probably will take delivery and retain ownership of the commodity; when used in connection with futures positions, the term usually means positions held by trade interests or well-financed speculators.
A listed product may be suspended from trade for reasons pertaining to a request from an appropriately designated regulatory authority. INSCX will in the event of any suspension act to ensure an orderly trade unwind whilst seeking clarification to justify a continued request from authorities to suspend and/or prohibit trade. Suspension can also be a procedure applied to restrict, cancel or amend a member's rights to use the Exchange.
A streaming auction denotes where the process of interaction between buyers and sellers in instructing or agreeing trade is not limited or enforced by the Exchange toward conclusion.
A tender auction on INSCX is where the Exchange permits qualified buyers to contest to purchase a commodity offered for sale by a producer in a manner which ensures completion. Tender auctions are usually employed in the case of a commodity requiring ocean transport and subject to certain conditions. For example, these auctions are set to close within a defined period. Secondly, in the event of a stalemate (non-willing completion) the process imposes the obligation on buyer and seller to transact at the mid-price between best bid/ask on a buyer sliding volume scale for the whole of the commodity volume offered for sale. The auction process also commences with a fixed reserve price set by the seller declared by the Specialist Merchant before live bidding is permitted .
A trade fix notification or "Fix" is a signal issued privately to the buyer and seller agreeing to trade and to the general market in nominee format that a transaction has been agreed. By nominee format, this means the general market broadcast cites only the particulars of commodity category or family, price, volume and delivery basis.
A trade indication price is a price assessment posted by the Specialist Merchant on the live platform on either the bid or ask side of the commodity concerned. Where an indication price is displayed the bid or ask quantity will be zero.
A trade firm price is where there is a quantity greater than zero adjacent the bid, ask or both displayed for the commodity concerned. This indicates that a buyer or seller as appropriate is willing to trade at the price in the volume concerned as a minimum quantity. Note: where a bid or ask or both quantity is displayed does not signal the extent of potential volume interest the counterparty has in the commodity concerned at the displayed price.
The trade blotter function on the live platform permits users to see their order history during the daily trading session. A user can monitor, alter or cancel any order they have placed on the platform during the trading session. Alterations and cancellations are first transmitted by voice or electronically to the Specialist who then process the request accordingly.
FCIA Forwards are contracts permitted on INSCX to be instructed by producers who wish to sell a commodity for monthly delivery intervals set a 3, 6, 9 and 12 months respectively where product is sourced from existing inventory. The contract is therefore, covered. Sales FCIA forwards are permitted only by producers while purchases are permitted only by other producers, authorised producer distributors and end users authorised by the producer concerned.
These are contracts on INSCX which permits a commodity for monthly delivery intervals set a 3, 6, 9 and 12 months rolling from the date of execution where the commodity product is yet to be fabricated, in other words, unavailable in existing inventory. The contract type is therefore, uncovered or "Naked". These contracts are NOT interchangeable with another other variants. Sales of UCN forward contracts are permitted only by producers, with purchase restricted to other producers, authorised producer distributors, and end users authorised by the selling producer concerned.
A Covered Forward trade in which professional traders can conduct business in. It is similar to the FCIA variant which is restricted to producers, but neither are interchangeable, as both variants are supported by underlying grades of the commodity concerned. Unlike the FCIA variant however, which is grade specific to a single grade, the IB variant is backed by multiple producer grades of underlying product in the chemical family. The cycle for trade is also different. The FBIA cycle is rolling from the date of execution, while the FCIB cycle is fixed to September, December, March, June expiry cycles with 2 cycles quoted at any one time. Unlike the Producer variant, delivery is at a last resort for the FCIB variant as opposed to mandatory. Finally, only profession traders authorised by the Exchange using qualified funds are permitted to trade the FCIB variant. Rights to act in a trading capacity can also be granted to a commercial user (such as sales/trading arms of producers) provided they are aware of the purpose of the contract type and associated risks. Where a buyer makes purchase, the purchase must be completed on a cleared funds basis paid in full on settlement. Furthermore, on settlement title to the underlying physical commodity held in storage by the Exchange passes to the buyer. When the buyer opts to unwind the position making a sale, title to the underlying commodity in storage passes to the follow-on buyer. The purpose of the FCIB contract is to add further support to the market in the context of permitting the input of a professional trading class to aid more fluid price discovery.
In all financial and commodity trading, decisions to buy or sell are made in two ways - fundamental or technical. While many market participants use a combination of both including supply and demand for underlying commodity product when deciding to trade, these terms and conventions are useful to understand. In the following tables we outline some of the more common conventions in either analysis.
Fundamental analysis includes all factors that influence supply and demand. For the commodities markets, fundamental factors often include weather and geopolitical events in producing countries; outside forces that influence price action. In financial futures, factors such as Central Bank actions and economic reports are among fundamental forces affecting prices.
Technical Analysis is based on inside market forces and involves tracking various price patterns that occurred in the markets in the past. While the application of Technical Analysis is commonplace among many of the participants involved with the trading of investment-grade commodities and other financial instruments, the science is relevant to any asset class including the commodities listed for trade on INSCX even engineered nanomaterials. Indeed as engineered nanomaterials graduate to be regarded as investment-grade assets in their own right, technical factors are ever just a likely to influence price action as those fundamental in origin. INSCX exchange provide all members with the opportunity to delve further into the science of Technical Analysis through providing access to dedicated literature and materials on the subject. The purpose of the reference to Analysis in the Glossary is to act as a guide as opposed to a definitive course.
Technical Analysts focus on a variety of time frames, and commodity trading decisions are based on past tendencies with the idea these price patterns tend to repeat themselves. Technical Analysis involves a wide range of techniques, and a variety of market indicators are studied including volume, open interest, momentum and tools such as the MACD. Each individual analyst has his favorite approach. Technical analysis is just as much art as it is science. In futures trading, technical analysis is a mainstay for many market participants trying to figure out a bull market from a bear market and finding just the right entry and exit points. Charting approaches such as OHLC bar, Japanese candlesticks and Gann, Trend identifiers such as MACD, pivot points and pattern recognition, Momentum indicators such as the Relative Strength Index (RSI) and Stochastics; all these form the mainstay of the arsenal of tools available to the Technical Analyst.
Professional traders know it takes an edge to successfully navigate any market, and for many, technical analysis provides that edge. Technical analysis can be defined as an approach to forecasting commodity prices that examines the patterns of price change, rates of change, and change in volume of trading and open interest, without regard to underlying fundamental market factors. Whether the focus is placed on moving averages, pivot points, or Gann theory, the study of technical analysis can provide valuable insight into price action for virtually any market. This Glossary contains a collection of informative descriptions that can help you learn more. The contents are organized by stages. If you have never explored technical analysis, the glossary terms are a place to start offering insight from basic conceptions to those a bit more advanced. While technical analysis methods may be the same for all traders, your own interpretation and analysis can offer you an edge that’s uniquely yours. For that reason, technical analysis has been called an art as much as a science. The authors of the articles in this Glossary are simply offering their interpretation of the concepts, and stress that advice is to be taken as educational in nature only, and not to be construed as specific trading advice.
The debate between fundamental and technical analysis has raged for decades. It is important to clarify the difference. Traders are often asked: What are the differences between fundamental and technical analysis, and how to decide which to favour when opting to trade? This debate between fundamental and technical analysis has raged for decades. It is important to clarify the difference. By definition, fundamentals consist of the economic factors behind a commodity, namely the influences on supply and demand. For example, fundamentals of cotton would include the size of last year’s crop, the amount of cotton left from that harvest that is still available for export and domestic use, the pace of exports this year, the progress of the upcoming crop, and projected weather that could affect its growth. These are all fundamentals, and if it looks like a lot of information, it is. Assuming that one is able to monitor all these factors, the next task is to form a “big picture” of the market and then try to determine how these factors could affect price over the next three to six months. Doing this is a key task in selecting markets that provide the greatest opportunities for choosing the right point and price to enter a trade at. Technical analysis, on the other hand, is the study of charts, chart formations, and an array of technical indicators that affect volume, price momentum, strength of buying or selling, and so on. Because technical trading tends to be more concrete and tangible (e.g., buy when prices hit this line), it attracts both the mathematical and the statistical-oriented crowds. Pure technicians believe all the current fundamentals are always priced into a futures or forward contract at any given time. Therefore, there is no use in studying the fundamentals because they are all reflected in the price patterns. The assertion that “fundamentals” are always reflected in the price may be true to a certain extent. Most of the known fundamentals could be reflected in the current price, because fundamental knowledge often lags technical indications of a price move. What the pure technicians overlook is that studying fundamentals is not done to determine how they are impacting the price today, but rather to project how these factors could impact prices in the future. The solution is to regard it as important to be aware of both kinds of analysis, but that technical analysis is used primarily to get you in the market quicker and at better price levels. In summary, fundamental considerations are typically; Economic factors, Supply and demand, Market-specific data, while technical considerations focus on aspects such as; Price action, Chart patterns, Volume and open interest.
A chart that graphs the high, low, and settlement prices for a specific trading session over a given period of time. The use of graphs and charts in the technical analysis of markets to plot price movements, volume, open interest or other statistical indicators or price movement.
An indicator used to compare volatility and relative price levels over a specified time period. Three bands are plotted: a simple moving average, an upper band of the simple moving average plus two standard deviations, and a lower band of the simple moving average minus two standard deviations. When the markets become more volatile, the bands widen, or move farther away from the average. When the markets are less volatile, the bands contract, or move closer to the average.
The range of prices between support and resistance levels that a market has traded in for a specific time period.
Also called non-linear dynamics, chaos theory involves complex analysis but is essentially a tool to determine whether repetitive patterns and cycles exist in the markets; that is, the presence of an underlying order. It involves the study of historical price action and use of mathematical and statistical tools.
Liquidating an existing long or short position with an equal and opposite transaction. Also called offsetting.
Commitments of Traders Report (COT). This is a weekly report from the Commodity Futures Trading Commission (CTFC) in America providing a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Open interest is broken down by aggregate commercial, non-commercial, and non-reportable holdings. Other exchanges also produce similar reports outlining the long positions traders hold in key commodities such as crude oil. On INSCX we offer a variant of these reports through Open Interest Declaration notices.
A trading terms used to describe a period of time characterised by repetitious and limited price fluctuations. Also referred to as back-and-filling.
A temporary reversal in prices following a significant trending period.
The method by which a trader takes a position contrary to the current market direction in anticipation of a change in that direction.
Chart pattern describing a drop in price, a rebound, and another drop to the same or close to the level of the first drop, then another rebound. The chart typically looks like a “W” in shape, and the two bottom points of the W represent support areas.
Chart pattern describing a rise in price, a fall, another rise to the same or close to the level of the first rise, then another fall. The chart typically looks like an “M” in shape, with the two top points of the M representing resistance areas.
A theory named after Ralph Elliott, who contended that stock market trends move in discernable and predictable patterns reflecting the basic harmony of nature, often applied to commodity markets. In technical analysis, it reflects a charting method based on the belief that all prices act as waves, rising and falling rhythmically in a pattern of five up and three down. Waves essentially reflect psychology of the marketplace as it makes its normal rallies and corrections.
Leonardo Fibonacci was a thirteenth-century Italian mathematician who discovered the significance and unique properties of a simple number series, in which each numeral is added to the previous to create the next one in the series: 0,1,2,3,5,8,13, etc. Fibonacci numbers, and more significantly the ratio of those numbers to each other, can be found throughout nature and cycles. Fibonacci ratios are used in technical analysis to predict retracement areas during pullbacks, as well as targets, called “extensions,” for projected price moves
A method of predicting price movements through the relationship of geometric angles in charts depicting time and price. The methodology was created by W.D. Gann, a financial astrologer who was born in 1878 and became one of the most successful traders of his time. Gann techniques can be complex, but are based on price study, time study and pattern study and operate under the premise markets are cyclical in nature.
Price areas on a chart where no trading takes place. Gaps happen often in markets that trade only part of a day because price-moving events and announcements take place during times when markets are closed. Follow-up price action may cover them, or “fill" the gap.
A chart formation that resembles a human head-and-shoulders and is generally considered to be predictive of a price reversal. Ahead-and-shoulders top (which is considered predictive of a price decline) consists of a high price, a decline to the support level, a rally to a higher price than the previous high price, a second decline to the support level, and a weaker rally to about the level of the first high price. The reverse (upside down) formation is called a head-and-shoulders bottom (which is predictive of a price rally).
A market in which selling and buying can be accomplished with minimal effect on price.
The relative change in price over a specific time interval. Often equated with speed or velocity and considered in terms of relative strength.
A statistical price analysis method of recognising different trends. Common variants are a Simple Moving Average (SMA) and an Exponential Moving Average (EMA). Moving averages are calculated by adding the prices for a predetermined number of days and then dividing by the number of days.
Moving Average Convergence/Divergence (MACD) analysis uses three moving averages, often exponential. Two of them are based on the number of price periods used and the third an average of the difference between the two moving averages. The difference between the readings of the two moving averages is usually shown as a histogram, while the average of that difference is shown as a moving average line plotted on top of the histogram. An important part of MACD analysis is how its movements compare with price movements to determine strength or weakness in the market.
A term for indicators used to determine overbought and oversold conditions, often useful when a clear trend can’t easily be determined. Oscillators include stochastics, moving average convergence/divergence, relative strength index and momentum.
A term used to describe a technical opinion on a market that has risen too steeply and too fast in relation to underlying fundamental factors.
A term used to describe a technical opinion of a market has declined too steeply and too fast in relation to underlying fundamental factors.
Traditional commodity Floor traders have long used pivot points to find intraday support/resistance levels. Pivot points are found by a simple calculation which involves the open,high,low and close for the previous day of any particular commodity. It is said that when a price hovers below a pivot or pivot support/resistance and breaks up through it then its a buy signal (or vice versa for a sell signal). Or if the prices are above the pivot it is considered bullish and if they are below then bearish. The most common way to use pivot points are as reference points for entering trades if your other favorite indicators are also giving the same directional signal. Market Makers can use the pivot points to create a market by shifting the price around between levels to entice buyers or sellers into a trade. This can best be seen on low volume trading days as the prices fluctuate between the calculated points.
An upward movement of prices.
The difference between the high and low price of a commodity during a given trading session, week, month, year, etc.
Relative Strength Index (RSI) compares periods with up closes with periods that have down closes to produce an index reading reflecting the strength of price changes on a scale of 0 to 100. The index provides overbought or oversold signals, and divergence/convergence with prices is an important part of the analysis.
A move opposite the direction of the main market trend.
A change in the direction of prices.
A market situation where price rises sharply caused by the lack of supply tending to force shorts to cover their positions and other buyers by offsetting at higher prices.
Stochastics measures the closing price relative to the low of the range for a selected period to indicate rising or falling momentum, providing trading signals when its lines cross into overbought or oversold territory. As an overbought/oversold indicator, the stochastic indicator attempts to forecast turns in market action.
The place on a price chart where it is expected buying of contracts will be sufficient to halt a price decline. Areas of support are found beneath current prices. The opposite of a resistance level where a resistance level is found above the current price.
The general direction, either up or down, in which prices have been moving. Trend lines are lines drawn across successively higher bottoms in up-trending price action or progressively lower tops in down-trending price action. Prices crossing a trend line may indicate a change in direction has occurred.
Trade weighted average price (TWAP) is average price of all buys and sells that have occurred in a particular trading session. The INSCX platform displays TWAP pricing on the Ticket specific to each product listing.
The number of purchases and sales of contracts made during a specified period of time.
Volume weighted average price (VWAP) is average price of all buy and sell orders that are currently live but not executed in a particular trading session. The INSCX platform displays VWAP pricing on the Ticket specific to each product listing.