Glossary of Terms

AAs: Against Actual. An operation where the physical commodities are exchanged for futures plus or minus the premium or discount in order to set the final contract price. (Known as EFPs or Exchange For Physicals in other market.)

Actual: The physical commodity itself, also known as physicals.

Arbitration: In general terms, this is a method of settling a dispute using an impartial third party. In sugar, there are different procedures for futures and physical contracts.

Arbitrage: The simultaneous buying of one futures contract and selling of another in order to profit from a disparity in price relationships. For example in sugar, the two most favored arbitrages are New York No.11 Raw Sugar against London No. 5 White sugar, and New York No. 11 vs. the Tokyo Grain Exchange Raw Sugar delivered contract.

At-The-Money: An option in which the underlying commodity is trading at the strike price of the option contract.

Backwardation: Where the futures market is characterized by prices which are progressively lower in the distant months. Also known as an inverse.

Bear: One who believes that the market will decline.

Bear Market: A market in which prices are declining.

BEOs: Buyer’s Executable Orders. Where the buyer gives instructions to his seller t buy futures on his behalf to fix the final contract price plus or minus the premium or discount.

Berth: The specific place within a port where the vessel is to load or discharge.

Bid : A contractually binding offer to buy sugar at a certain price within a certain time limit that can be given either in writing or orally.(Sometimes referred to as a “ firm bid” .)

Bill Of Lading: Document signed by the master of the vessel showing proof of delivery of the goods on board the vessel. it is used as evidence of the contract of carriage and as a means of transferring rights to the goods in transit by the transfer of the document to another party.

Bull : One who believes the market will rise.

Bull Market : A market in which prices are rising.

Buying Hedge ( Or Long Hedge ): The purchase of futures to protect against possible price increases of the commodity needed in the future.

CAD : Cash Against Documents. Buyer pays for the goods against presentation of shipping documents.

CAF: Cost And Freight ( sometimes CFR ).The seller must pay costs and freight necessary to bring the sugar to the named port of destination.The risk of loss or damage to the sugar is transferred to the buyer when the sugar passes the ship’s rail at port of loading.

Call Option : An option contract under which the holder has the right , but not the obligation ,to purchase a fixed amount of the underlying commodity at a stated price , within a specified period of time.

Carry: Negative price differential whereby the price of the nearby shipment position is less than the price of the deferred shipment position.

Carryover: The surplus stocks of a commodity from a previous season that are used in the current season.

CC: Current Crop. Sugar to have been produced since the start of the current crop year for that particular origin.

CFTC: Commodity Futures Trading Commission. The independent federal agency established by Congress with overall responsibility to regulate the futures industry in the United States.

Charter Party: The contract between the owner of the vessel and the charterer.

Clearing House: The part of a futures exchange which is a counter party to all traders , it takes the responsibility of acting as a buyer for all the sellers and a seller for all the buyers.

Clearing Member : A member of the Clearing House who must also be a member of the Exchange .An Exchange Member does not have to be a Clearing Member , but all his trades have to be registered and settled through a Clearer.

Commission House: A company that executes futures orders for clients in return for a commission.

Commodity Trading Advisor: An individual or firm who , for a commission or share of profit ,directly or indirectly advises others on buying or selling futures contracts or commodity options.

Contango : A situation in the market where prices increase with each successive delivery month down the board. Also known as a carry.

Co-Shipment Allowed: Seller has the right to fulfil his obligations to the buyer against a CAF sale by shipping the commodity on the same vessels with other similar Commodities destined for different buyer.

COT: Commitment of Traders Report published every two weeks by the CFTC showing the future positions in the NY futures market held

by different trading categories.

COP: Discharge rate as per Custom Of Port. no demurrage nor despatch to be paid.

CIF: Cost Insurance Freight. The seller has the same obligations as under CAF but also has to insure the risk of loss or damage during transport. (From warehouse to warehouse under the rules of the SAL ( 117A ) ).

CIFDP: Cost Insurance Freight with any import duties in country of destination for seller’s account. Seller has obligation to arrange custom clearance in importing country.

Day : A period of 24 consecutive hours running from 0001 hours to 2400 hours. Any part of the days shall be counted as pro rata ( for laytime calculations ).

Day Order: An order in the futures market which expires , if not executed , at the end of the trading day on which it was entered .

Delivery: The settlement of a futures contract to fulfil an obligation to supply or receive the actual commodity on the date agreed upon in the contract. Hence delivery notice , delivery price.

Delivered At Border: Seller has fulfilled his obligations when the commodity has been delivered to the border ( frontier ) and customs cleared for export.

Delivered Ex Ship: The seller fulfils his obligations to the buyer when he has made available the commodity to the buyer on board the ship. (Sometimes referred to as ex-hold or in vessel’s hold ).

Delivered Ex Quay: The seller fulfils his obligation to the buyer when he delivers the Commodity to the buyer on the quay. If duty paid the seller has to pay all import duties and carry out all customs formalities.

Demurrage : An agreed amount payable to the owner in respect of delay to the vessel beyond the laytime , for which the owner is not responsible.

Despatch: An agreed amount payable by the owner if the vessel completes loading or discharging before the laytime has expired

Despatch On All Time Saved (ATS ): Despatch money shall be payable by the owner from the completion of loading or discharging to the expiry of the laytime including periods exempted from the laytime.

Discounts : Negative price differential between physical sugar and its corresponding futures month .

Discretionary Account: An account in which the customer gives the broker or another party trading authority to buy and sell commodities on his behalf.

Equity : The total cash value of an account , including the amount of profit or loss that would be incurred if the existing futures positions were liquidated at the current settlement price.

Exercise: Taking advantage of the right to buy or sell the underlying futures contract at the agreed upon strike price.

Ex-pit Transaction : A legal trade executed outside the exchange trading ring. Used normally to transfer positions from one clearer to another.

Ex Works: Seller has fulfilled his obligation to the buyer once he has made the commodity available at his premises or ( ex warehouse ) his warehouse. The seller is not obliged to load the commodity onto whatever vehicle is provided by buyer.

FAS: Free Alongside Ship. The seller fulfils his obligation to the buyer when the commodity has been placed alongside the vessel on the quay or in lighters at the port of shipment.

Fast Market: When trading is so volatile and takes place so fast that a floor broker cannot be held responsible for failure to fill limit orders.

FAQ: Fair Average Quality .The quality of the commodity must be similar to other commodities produced in that country during the same crop year.

Fill or Kill Order: An order to execute and order immediately or cancel the order .

Floor Broker: A Member of the Exchange who executes customer orders on the floor.

Floor Trader: A member of the Exchange who trades for his personal account . Also called a local.

FOB: Free On Board. The seller fulfils his obligation to the buyer when the commodity has passed over the ship’s rail at the port of shipment.

FOBS : Free On Board Stowed. The seller fulfils his obligation to the buyer when the commodity has passed the ship’s rail and been correctly stowed in the vessel. Title ,however , passes at the ship’s rail.

Force Majeure: Events and happenings that occur which prevent or delay loading or shipping .These events , as stated in the rules of SAL and RSA ,are as follows : war, strikes, rebellion , insurrection , political or labour disturbances , civil commotion , fire , stress of weather , act of God or any cause of force majeure ( whether or not of like kind to those before mentioned ) beyond the sellers control.

Form A: Otherwise known as GSTP Form A showing that the sugar is from a country of origin which is a member of the General System of Trade Preferences.

Funds : The Funds , often referred to in media reports about the activity of the futures market , are in fact institutions which combine individual subscribers’ investments to trade a wide range of markets with a collective power and influence not available to any single one of its subscribers. Funds usually , but not always , work on a technical basis , with the aim of pinpointing price trends , which they will support and follow until the ‘ signals ’ say otherwise.

Futures Commission House(FCM): An individual or firm which solicits or accepts orders to buy or sell futures contracts or commodity options . For a commission , FCMs will handle the execution of trades for their customers , from whom they take cash or other assets to finance futures business. FCMs also provide research and information on the market.

GSTP: General System of Trade Preferences. A certificate ( sometimes referred to as a Form A ) showing that the country of origin of the sugar is a member of the GSTP group of countries. This is one of the documents that is necessary in order to enter sugar into other GSTP countries at often preferential rates of import duty.

Helms Burton Act : American legislation that prevents US companies and their overseas subsidiaries from trading Cuban sugar.

ICUMSA: International Commission for Uniform Methods of Sugar Analysis. A scale of measurement for the colour of sugar. The lower the ICUMSA , the whiter the sugar.

Initial Margin: The amount of money that must be deposited in an account when a futures position is established . Also called Original Margin.

In The Money: The intrinsic value of an option contract , e.g. when the underlying future is higher than the strike price of a call option , or when the underlying future is trading below the strike price of a put option.

ISO: International Sugar Organization.

International Scale: ( of polarization premiums .). For every full degree above 96 to and including 97 add 1.5% , for every degree above 97to and including 98 add 1.25% , and for every degree above 98 to and including 99 add 1.0% . Fractions of degree are calculated pro rata .

Inverse : Positive price differential where the price of the nearby shipment position is at a premium to the more deferred position.

Laytime: The period of time agreed between the parties during which the vessel owner will make and keep the vessel available for loading or discharging without payment additional to the freight.

Letter of Credit (LC ): A written undertaking by a bank given to the seller , on instructions from the buyer to pay at sight or at determinable future date up to the stated sum of money within a proscribed time limit and against stipulated documents.

Limit Orders: Orders to brokers to buy or sell at a specified price or better. Sometimes called resting orders.

Liner Out: The seller / ship owner delivers the commodity to the port of discharge and discharges on to the quay at no cost to the buyer. No demurrage or dispatch to be paid.

Maintenance Margin: The level to which the initial may decrease without the customer being called for additional margin.

Margin Call: A demand for additional funds made by a futures broker to a customer when the cash in the account falls below the maintenance margin level. The Clearing House also issues margin calls to member firms when required.

Market Orders: Orders to a futures broker, which must be executed without delay at the best price obtainable.

Market On Opening Order: An order to buy or sell at market during the opening.

Market On Close Order: An order to buy or sell at market during the close.

Market If Touched (MIT) Order: An order, which becomes a market order when the commodity touches a specified price.

Minimum Price Fluctuation: Also called minimum tick. The minimum price increment in a futures market. In New York No.11 Sugar it is 1 point, which equals $11.20 per contract of 50 tons.

Mill Whites: Low quality white sugar produced directly at the mill with a color usually around 300 ICUMSA. (Otherwise known as plantation whites.)

Notice of Readiness (NOR): The notice to charterer, shipper, receiver, or other person as required by the charter party that the vessel has arrived at the port or berth and is ready to load or discharge.

Offer: A contractually binding offer to sell commodity at a certain price within a certain time limit that can be given either in writing or orally. (Sometimes referred to as a ‘ firm offer’.)

Open Interest: All contracts that have not been liquidated or settled by an offsetting trade.

Open Order: The same as good till cancelled.

Option: The right to buy (call) or sell (put) the underlying futures contracts at a specified price (the strike or exercise price) within a specified period of time.

Out Of The Money: An option that has no intrinsic value, e.g. when the underlying future is below the strike price of a call, or above the strike price of a put.

Per Hatch Per Day: Means that the lay time is to be calculated by dividing the quantity of cargo by the result of multiplying the agreed daily per hatch by the number of the vessel’s hatches. Each pair of parallel twin hatches shall count as one hatch. Nevertheless, a hatch that can be worked simultaneously by two gangs shall be counted as two hatches.

Physicals: The actual commodity (as opposed to the futures).

Plantation Whites: Low quality or unrefined white sugar produced directly at the mill.

Points: One point is 1/100 of one cent per pound. To convert the price of sugar from points per pound into dollars per metric tone multiply them by 0.220462. To convert them into dollars per long ton multiply by 0.224.

Polarization: Measurement of sucrose content in sugar. 100 are maximum and means 100% sucrose. Raw sugar is usually traded basis 96 polarization.

Polarization Premiums: Scale of payments for rewarding the producer for delivering sugar above 96 polarizations or penalizing the producer for delivering sugar between 96 and 93.

Port: An area within which vessels load or discharge cargo whether at berths, anchorages, buoys or the like including the usual places where vessels wait for their turn.

Port Rotation: The order in which a vessel will call at different ports to load or unload its cargo.

Premiums: Positive price differential between physical commodity and its corresponding futures month.

Remelting: Refers to taking domestically produced raw sugar and refining it into whites either for local consumption or for export. (Usually refers to Thailand.)

RSA: Refined Sugar Association.

SAL: Sugar Association of London.

SEOs: Seller’s Executable Orders where the seller gives instructions to the buyer to sell futures to set the final contract price plus or minus the premium or discount.

Spreads: Price differentials between different forward shipment positions for either physicals or futures.

Stop Orders: Orders to buy or sell at the market if the contract trades at or through a specified price (the stop price).

Stop Limit Orders: Orders to buy or sell at a specified price or better if the contract at or through a specified stop price.

Strike: A concerted industrial action by workmen causing a complete stoppage of there work which directly interferes with the working of the vessel. Refusal to work overtime, go-slow, or working to rule and comparable actions not causing a complete stoppage shall not be considered a strike.

Strike Price: The fixed price in a range of fixed prices in the option market at which the calls or puts are traded, for a premium to the seller / granter.

Switch: Liquidating a futures position in one delivery month while simultaneously establishing that position in another delivery month.

Tel Quel: Literally ‘ Quality as is ‘. A method of buying or selling sugar when the seller includes the cost of the polarization premiums in the price. Therefore, no polarization premiums are to be paid.

Time Value: The amount of the option premium that exceeds its intrinsic value.

Tolling: The refining of imported raw sugar for re-export as whites.

Trade house: A company or corporation that buys, sells and transports physical commodity for his or her own account and risk.

TCSC: Thai Cane Sugar Corporation.

TSTC: Thai Sugar Trading Corporation.

UK Scale: Scale of polarization premiums. Buyer has to pay an extra 1.4% per degree for sugar with a polarization from 96 to 99 degree. Part of a degree to be charged pro rata. No extra premium to be paid above 99 degree.

Variation Margin: The amount of money that must be deposited in a futures account to restore the equity back to the initial margin requirement.

VHPs: Very High Polarization Sugar. A non-exact term that usually refers to bulk Brazilian sugar that has a polarization between 99.0 and 99.5 degree. In Thailand VHPs can refer to bulk raw with a polarization above 99.5 degree.

VVHPs: Very Very High Polarization sugar. A non-exact term that usually refers to bulk Brazilian sugar with a polarization above 99.5 degree. (They can also be called Bks, which refers to VVHPs with a maximum ICUMSA of 750)

Weather Working Day (WWD): A working day of 24 consecutive hours except for any time when prevents the loading or unloading of the vessel or would have prevented it had work been progress.

WIBON: Whether in Berth Or Not. If no loading or discharging berth is available on her arrival, the vessel, on reaching any usual waiting place at or off the port, shall be entitled to tender notice of readiness from it and lay time shall continue in accordance with the charter party.

Whites Premiums: Usually refers to the price differential between raw and white sugar as shown by the New York and London futures markets. (Expressed in dollars).

WIFPON: Whether In Free Pratique Or Not. The completion of customs formalities shall not be a condition precedent to tendering notice of readiness, but any time lost by reason of delay in the vessel’s completion of these formalities shall not count as lay time or time on demurrage.