Stock Index Futures Terms
Here you can review a short list of the jargon you'll encounter when learning more about Stock Index Futures.
Definitions are not intended to suggest the correct legal significance or exact meaning. They were collected from several sources to help in your understanding of the futures and options industry.
Arbitrage
The simultaneous purchase and sale of identical or equivalent financial
instruments or commodity futures in order to benefit from a discrepancy
in their price relationship.
Circuit Breakers
A system of trading halts and price limits on equities and derivative markets
designed to provide a cooling-off period during large, intraday market movements.
Financial Instrument
There are two basic types: (1) a debt instrument, which is a loan with an
agreement to pay back funds with interest; (2) an equity security, which
is a share or stock in a company.
GLOBEX®
The CME's global electronic trading system. Primarily aimed at the after-hours
market, Globex® has several all-electronic contracts that run virtually
around the clock.
Program Trading
A catch-all phrase for trading activities that involve the purchase (or
sale) of a large number of stocks. The term commonly includes computer aided
stock market buying or selling programs, portfolio insurance, and index
arbitrage.
Sell Programs
A specific type of Index Arbitrage that involves the simultaneous purchase
of Stock Index Futures against the sale of a large number of stocks that
comprise (or closely resemble) the Index.
Shock Absorber
A temporary restriction in the trading of stock index futures which becomes
effective following a significant intraday decrease in stock index futures
prices. Designed to provide an adjustment period to digest new market information,
the restriction bars trading below a specified price level. Shock Absorbers
are generally market specific and at tighter levels than circuit breakers.
Stock Index
An indicator used to measure and report value changes in a selected group
of stocks. How a particular stock index tracks the market depends on its
composition the sampling of stocks, the weighting of individual stocks,
and the method of averaging used to establish an index.
Systemic Risk
Market risk due to price fluctuations which cannot be eliminated by diversification.
