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Glossary

Additional Margin
An additional margin serves to cover the extra collateral needed for the projected cost of closing a transaction. These potential closure costs can arise should - extrapolated from to the current market value of the portfolio - within 24 hours a notional adverse rate development were to occur (a so termed "worst case loss" situation). This applies to options and non-spread future positions.

American Option
An option that may be exercised on any trading day prior to the expiry of a futures contract.

Arbitrage
Taking intentional advantage of simultaneous price, exchange or interest rate discrepancies of a financial instrument (stocks, bonds, currency, commodities, options) on different financial markets. In theory the arbitrage is without risk, i.e. offers a risk-free profit.

At the money (ATM)
An option whose strike price is approximately equal to the market price of the underlying.

Basis
Difference between the current (spot) market price of the underlying and the future price.

Beta
The beta factor measures the relative volatility of a stock or portfolio as compared to the development of the market as a whole.

Call
An options contract, giving the buyer the right to buy a specific amount of an underlying at a fixed price on or before a specified date (physical delivery). The right to physical delivery can be substituted by a cash settlement (stock index derivate).

Cash Settlement
The settlement of a contract by the payment or receipt of a cash sum instead of the physical delivery of the underlying. In the case of an option contract the cash settlement is determined by the difference between the strike price of the option and the closing market price of the underlying asset. In the case of a financial future contract the cash settlement is determined by the difference between the closing market price and the daily settlement price of the contract the day before.

CFTC
The "Commodity Futures Trading Commission" is a U.S. federal regulatory agency that protects investors from fraud and manipulation in the derivates market.

Commodity Trading Advisor (CTA)
A manager (company or individual) specializing in the currency or commodity futures markets.

Conversion
Creation of a synthetic short future position by the writing of calls or the purchase of puts with the same strike price and expiry date with simultaneous entry of a "real" long future position (the opposite of a reversal).

Correlation
A ratio for the degree of interdependence of two strategies or benchmarks. A perfect correlation is signified by the number 1.00, while for a completely negative correlation -1.00 is used.

Correlation Coefficient
Used to measure the synchronization between two financial instruments. Systematically employed it can reduce the market risk of an instrument by comparing either a negative correlative security or a counter position of a positive correlative instrument.

Daily Closing Price
The closing price defined daily by Eurex Clearing AG for the revaluation of open options and futures positions.

DAX®
The DAX index comprises 30 German benchmark blue-chips, chosen according to several criteria including FWP order book turnover, free-float market capitalization and adherence to the German takeover code. The DAX is a performance index, meaning that for the calculation a hypothetical reinvestment of dividends is assumed.

Delta
The amount by which the option price changes should the underlying value change by one unit.

Derivate
Futures contracts are always related to an underlying, from which they are derived. Hence one speaks of derivates.

Discretionary
With this strategy the manager relies exclusively on his experience. In the main, however, a mixture of systematic and discretionary styles is generally employed: An automatic trading system produces a certain preliminary decision, the manager then selects from the orders, amending or stopping them according to his experience and knowledge.

Dow Jones Global Titans 50-Index
Based on their market capitalization, the Dow Jones Global Titans 50-Index includes the 50 largest stock market listed companies in the world.

Dow Jones STOXX Indexes
The Dow Jones STOXX 50 and the Dow Jones EURO STOXX 50 are the blue-chip indexes of the STOXX family. They are based on the 50 largest market capitalized companies across all the countries of the European Union (16) and the countries of the Euro zone (10) respectively. The market capitalization is determined by the number of all stocks within a category of stocks. The maximum weight of a title in a blue chips index is limited to 10 percent of the total market capitalization of the index. For this reason the number of stocks of a company used for the index calculation can differ for blue chip indices and other indices.

Drawdown
Periods of decline in account value that can arise during a program. In certain circumstances these can continue over many months.

Due Date (Maturity Date)
The date upon which the defined obligations must be fulfilled in a financial future contract (delivery, cash settlement).

Due Diligence
In the securities trading business this is understood to be an investigation through the bank of the results and business position as well as the annual accounts of the respective issuer.

Dedicated Short Bias
Diese Strategie ist eine spezielle Variante von Long-Short Equity, bei der die Manager eine Netto-Short-Position im Markt aufrechterhalten. Short Biased-Manager gehen meistens in Aktien oder Derivaten Short-Positionen ein, bei denen mit einem Kursruckgang gerechnet wird, z. B. auf Grund wesentlicher Mangel im Geschaftsprojekt des Unternehmens, schlechten Managements oder eines veralteten Produktprogramms. Die Short-Ausrichtung des Portfolios eines solchen Managers muss permanent gro?er als null sein, um unter diese Kategorie zu fallen.

Drawdown
Verlustphase, die innerhalb eines Programms entstehen kann. Diese kann sich unter Umstanden auch uber mehrere Monate hinziehen.

European Option
An option that can only be exercised on the final trading day of its period.

Exercise
of the options contract.

Expiry Date (Date of Expiration)
The date after which options rights can no longer be exercised.

Financial Future Contract
A standardized contract, agreeing the delivery or receipt of a specified amount of a financial instrument at a specified price on a future date.

Financial Future Contract
A standardized contract, agreeing the delivery or receipt of a specified amount of a financial instrument at a specified price on a future date.

Finnish Stock Index (HEX25)
The Finnish stock index is a capitalization weighted price index. It is calculated progressively on the 25 most traded stocks on the Helsinki Exchange.

Future Spread Margin
This margin is deposited as collateral to cover the risk of a worst-case loss within 24 hours for a spread position.

Futures
Futures are derivative financial instruments. Futures are standardized, exchange-traded scheduled contracts with contractual obligations to deliver (short) or draw (long) a specified amount of an underlying, at a fixed price and at fixed point in the future, both determined by contract agreement.

Hedging
Using a strategy to safeguard a portfolio or planned investment against disadvantageous fluctuations in price.

High Watermark Principle
A performance fee based on this principle is only due should a positive growth in value be achieved, i.e. earliest when a historical peak or a specified performance level has been exceeded.

Implicit Volatility
The volatility reflected in the option price.

In the Money (ITM)
A call option, where the current market price is above the strike price, or a put option, where the market price of the underlying is below the strike price.

Intrinsic Value
The intrinsic value of an option refers to the difference between the current (spot) market price and the strike price of the option, provided this represents an advantage to the buyer. The intrinsic value is always positive or set to zero, since negative values are of no interest.

Leverage effect
In relation to invested capital, the percentage change of value with options and futures contracts is larger than the corresponding change in the underlying. This exaggerated potential of gains and losses is described as a leverage effect.

Long Position
An open purchasing position in a futures contract.

Managed Futures
Fund managers who proceed according to this strategy mainly use futures contracts, as well as holding short and long positions. Speculation is made on the rising and falling rates of futures, but also other derivates, in the categories of stocks, bonds, indexes, currencies or commodities.

Management Fee
The management (or administration) fee is charged directly to portfolio holders. The CTA invoices this to customers for administration and management.

Margin (Additional Margin, Premium Margin, Future-Spread Margin)
Collateral payment, which must be deposited to assure the performance of contract obligations.

Margin to Equity
Indicates what percentage of the investment sum must be deposited as a margin on average.

Mark To Market (MTM)
Daily revaluation of positions in financial futures and options on futures after market close for the calculation of daily profits and losses. They are said to be "marked to market".

Net performance
Performance after deduction of all administration fees, profit sharing and transaction costs.

NFA
The National Futures Association is an independent regulatory organization that safeguards the derivatives (futures) market integrity. All who are active for their clients in the U.S. futures markets are obliged to register with the CFTC and be members of the NFA.

Non-Spread Future Position
Long or short positions, that remain after the subtraction of concurrently running positions with differing expiry periods and for which an additional margin must be deposited.

Option
The right to buy (call) or sell (put) a particular amount of a particular underlying at a fixed price on or before a particular date.

Option price
The amount paid for the rights of an option.

Option Writer
The opposite party of the option buyer, who is obliged in the case of an exercise of the option to deliver (call) or to draw (put) the underlying, and who receives the option price in return.

Options
Options are derivative financial instruments. Options are handled as standardized, stock market agreements, giving the holder the right, but not the obligation, to buy (call) or sell (put) a specified amount of an underlying, within a fixed period and at a fixed price determined by contract agreement.

Out of the Money (OTM)
A call option where the current rate of the underlying is lower than the strike price, or a put option where the current rate of the underlying is higher than the strike price.

Performance Fee
A profit-sharing management fee, contingent on returns and charged directly upon the achievement of a positive return at month or year end. It can also be furnished with a "high watermark" clause.

Premium Margin
The premium margin is collateral deposited by the option writer. It remains until the exercise or expiry of the option and covers what the option writer would need to pay to close the transaction at the settlement price. The premium margin is constantly adjusted. The buyer of an option needs to deposit no margin, because by the payment of the option premium a right is created, but no obligation is entered into. His maximum risk is that the contract lapses worthlessly and so is limited to the option premium.

Profit Sharing
See Performance Fee

Put
An option contract, giving the buyer the right to sell a specific amount of an underlying at a fixed price on or before a specified date (physical delivery). The right to physical delivery can be substituted by a cash settlement (stock index derivate).

Reversal
The creation of a synthetic long future position by the purchase of calls and the writing of puts with the same strike prices and expiry dates and the simultaneous entry of a "real" short future position (the opposite of a conversion).

Round Turn Fee
Fees payable to the broker for the handling of a futures trade.

RT/Year/Million
Indicates how many round turns the program has dealt with on average in the year, on the basis of a one million investment sum.

Sharpe Ratio
The Sharpe ratio measures the relationship between risk and yield of an investment. For this a risk-free rate of interest is deducted from the yield and then divided by the standard deviation. The higher the Sharpe ratio, the better the risk-adjusted performance.

Short Position
An open selling position in a futures contract.

Spread Position
In the case of options trading, the simultaneous buying and selling of options contracts with different strike prices and/or different expiry dates. In the case of financial (money market) futures, the simultaneous buying and selling of futures contracts with different expiry dates or underlying assets.

Standard Deviation
Another term for volatility.

Straddle
Long and short positions with the same number of calls and puts of the same underlying with the same strike prices and the same expiry dates.

Strangle
A long or short position with the same number of calls and puts on the same underlying with the same expiry date, however, with different strike prices.

Strike price
The price at which the underlying will be drawn or delivered by the exercise of an option.

Swiss Market Index (SMI)
The SMI is a capital weighted price index, based on a basket of stocks whose titles are constantly being traded. It covers up to 30 free-float titles of highly capitalized businesses in the Swiss stock market.

Synthetic Position
Emulation of options or futures contract characteristics by using other derivates.

Systematic Risk
Systematic risk depends on factors that affect the entire market or segment, so cannot be reduced or eliminated by diversification of a portfolio, but can be mitigated by hedging.

Time Value (Extrinsic Value)
The time value measures that proportion of the option value resulting from the time remaining until the expiration date. The longer the remaining period, the higher the option value due to the time span, during which the value of the underlying could increase or decrease (possible exception: deep in the money puts).

Transaction Closure
The termination of an open option or future position through a buy-back is termed transaction closing or closing off a position.

Underlying (Asset)
A title, an index or other financial instrument, to which an option or futures contract relates.

Unsystematic Risk
Part of the overall risk affecting specific investments, not explained by fluctuations in the market as whole.

Variations Margin
Profit or loss, resulting from the daily revaluation of the future (mark to market). The variation margin is balanced in cash daily.

Volatility
The magnitude of the actual or to be expected yield fluctuation of a financial instrument. The measured volatility for the instrument can differ according to the period it relates to. It can either be calculated historically or implicitly.

Worst Case Loss
The highest possible transaction closing loss for the next market day. The collateral to cover this is by an additional margin or futures-spread margin, as applicable.