Word of the Day
Futures Terms that begin "N"
NFA
National Futures Association.
Naked Option
The sale of a call or put option without holding an equal and opposite position in the underlying instrument. Also referred to as an uncovered option, naked call, or naked put.
Narrow-Based Security Index
In general, and subject to certain exclusions, an index that has any one of the four characteristics 1) it has nine or fewer component securities 2) any one of its component securities compromises more than 30% of its weighting 3) the top five highest weighted securities together comprise more than 60% of its weighting 4) he lowest weighted component securities comprising, in aggregate, 25% of the index's weighting have an aggregate value of daily trading volume of less than $50 Million (or in the case of an index with 15 or more securities, $30 Million). A security index that is not narrow-based is a 'broad based security index.
National Futures Association (NFA)
Authorized by Congress in 1974 and designated by the CFTC in 1982 as a "registered futures association", NFA is the industry wide self-regulatory organization of the futures industry.
National Introducing Brokers Association (NIBA)
NIBA is a non-profit organization for guaranteed and independent introducing brokers.
Negative Gearing
Negative gearing is a form of financial leverage where an investor borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan. (When the income does cover the interest it is called positive gearing.)A negative gearing strategy can only make a profit if the asset rises in value by enough to cover the shortfall between the income and interest which the investor suffers. The investor must also be able to fund that shortfall until the asset is sold. The taxation treatment of interest expenses and future gain will affect the investor's final return too. Tax rules vary from country to country. Negative gearing on property is only found in Canada, Australia, and New Zealand.
Net Asset Value
The value of each unit of participation in a commodity pool. Basically a calculation of assets minus liabilities plus or minus the value of open positions when marked to the market, divided by the total number of outstanding units.
Net New Highs
A net new high is reached when the net asset value of an investment exceeds the previous peak level in the net asset value (also known as the 'high watermark'). Performance fees are levied on net new highs.
Net Position
The difference between the open long contracts and the open short contracts held by a trader in any one commodity.
Nominal Value
The face value of the futures contract, obtained by multiplying the contract price by the number of units or shares per contract. If XYZ stock index futures are trading at $50.25 per share and the contract is for 100 shares of XYZ stock, then the nominal value of the futures contract would be $5,025.00.
Notional Funding
Notional funding is the term used for funding an account below its nominal value. For example, assume a CTA requires a minimum investment of $1,000,000 (the "Nominal Value") and the margin requirement is $50,000.
The investor can either deposit $1,000,000 to "fully fund" that minimum investment requirement or she can invest only a portion of the $1,000,000, as long as she meets the $50,000 margin requirement. Now assume that the investor decides to fund the $1,000,000 account with $100,000 (the "Funding Level"). This means that the investor is using leverage of 10X-ten times $100,000 equals the $1,000,000 minimum investment. The difference between the Nominal Value ($1,000,000) and the Funding Level ($100,000) is $900,000. The $900,000 is referred to as "Notional Funding".
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