Day order
In finance, a day order is an order that will be automatically canceled if it cannot be carried out before the end of the trading day. Thus, the order will not be in force when the next trading day starts. Both sell orders and purchase orders can be day orders.
The opposite of a day order is a G.T.C order. G.T.C stands for Good Till Canceled. A G.T.C order will remain active until it is either filled or manually canceled.
Day trading
A day trader will purchase and sell assets within the same trading day. All positions are closed before the end of the market day. The aim of day trading is usually to make a profit on small market fluctuations. This can be contrasted with investing, where an investor seeks to make a profit by holding on to an asset for a longer period of time.
Almost any asset with a liquid enough market can be day traded, including financial instruments.
Leverage is often employed by the day trader to amplify the profits made on small price fluctuations.
Daily price limit for futures contracts
For futures contracts, the clearinghouse will establish a maximum price and a minimum price for which the futures contract can be traded during a specific day. Those are the daily price limits for the futures contract. The clearinghouse will typically use the previous trading day’s settlement price for the futures contract when determining the price limits for today.
Daily settlement of futures contracts
For futures contracts, the daily settlement is a process where the daily price changes are paid by the losing parties to the gaining parties. It is normally a clearinghouse that handles the process. The trading parties have deposited money into collateral accounts that are controlled by the clearinghouse, and the clearinghouse will move money from one account to another to reflect the daily price change of a futures contract.
Deferred month or months of a futures contract
The deferred month or months of a futures contract is the latter months of the contract.
Example: You purchase a three-month future that expires at the end of May. In March, the months of April and May are the deferred months for this futures contract. In April, May is the deferred month of the futures contract.
Deferred strike option
A deferred strike option is an option for which the exercise price is not established when the option is created. Instead, the option contains a formula that will be used to determine the strike price at a future date.
Delivery
In finance, delivery is the action where the underlying asset of an option, forward, futures contract or similar is delivered to the contract holder.
- Delivery Day is the expiry date of the contract.
- Delivery Months is the calender month in which the contract expires.
- Delivery Notice is a written notice to the clearinghouse, in which the holder of a short position informs the clearinghouse of their intent to deliver a commodity for settlement.
- Deliver Price is the value of the conveyance of the underlying asset when the contract expires. The delivery price is set by the clearinghouse.
Derivatives
In finance, a derivative is a contract that derives its value from the performance of an underlying asset or other entity (such as an index or interest rate). Stocks, bonds and currency are three examples of assets that are often used as the underlying asset for derivative contracts.
It is possible to let a derivative be the underlying asset of another derivative.
Examples of commonly traded derivatives are options, swaps, forwards and futures contracts. Some derivatives are highly standardized and traded on exchanges, while others are tailor-made and traded over-the-counter.
Dynamic hedging
When you carry out dynamic hedging, you hedge an asset by selling futures in a way that ensures that the position is adjusted frequently to adapt to changes in the basis between the hedged asset and the price of the futures contract.
Exercising an option
- You exercise a call option by buying the underlying asset.
- You exercise a put option by selling the underlying asset.
- An American style option can be exercised on any date until its expiry date. If you elect to exercise the option before the last possible day of exercise, you are doing an early exercise of the option. European style options can only be exercised on their expiration date, and early exercise is thus not possible.
- You let a clearinghouse know of your intention to make or take delivery of the option’s underlying asset by sending an exercise note to the clearinghouse.
Financial futures
Futures contracts where the underlying asset is financial (e.g. a currency or bonds) are called financial futures.
Forward contract
A forward contract is a contractual agreement between two counterparts to exchange a certain asset at a set price on a pre-determined future date. The set price is called delivery price.
- If you are the counterpart that has agreed to sell the asset, you have assumed a short position.
- If you are the counterpart that has agreed to purchase the asset, you have assumed a long position.