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Last trading day: The last business day prior to the option’s expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.

Last trading day: The last day on which a futures contract is traded.

Law of Demand: Demand exhibits a direct relationship to price. If all other factors remain constant, an increase in demand leads to an increased price, while a decrease in demand leads to a decreased price.

Law of Supply: Supply exhibits an inverse relationship to price. If all other factors hold constant, an increase in supply causes a decreased price, while a decrease in supply causes an increased price.

LEAPS® (Long-term Equity AnticiPation Securities also known as long-dated options): In plain language, this means calls or puts with an expiration as long as thirty-nine months. Currently, equity LEAPS have two series at any time with a January expiration. For example, in October 2007, LEAPS are available with expirations of January 2009 and January 2010.

Leg: A term describing one side of a position with two or more sides. When a trader legs into a spread, he/she establishes one side first, hoping for a favorable price movement so the other side can be executed at a better price. This is, of course, a higher-risk method of establishing a spread position.

Letter of acknowledgment: A form received with a Disclosure Document intended for the customer’s signature upon reading and understanding the Disclosure Document. The FCM is required to maintain all letters of acknowledgment on file. It may also be known as a Third Party Account Controllers form.

Leverage: A term describing the greater percentage of profit or loss potential when a given amount of money controls a security with a much larger face value. For example, a call option enables the owner to assume the upside potential of 100 shares of stock by investing a much smaller amount than that required to buy the stock. If the stock increases by 10 percent, for example, the option might double in value. Conversely, a 10 percent stock price decline might result in the total loss of the purchase price of the option.

Leverage: The control of a larger sum of money with a smaller amount. By accepting the liability to purchase or deliver the total value of a futures contract, a smaller sum (margin) may be used as earnest money to guarantee performance. If prices move favorably, a large return on the margin can be earned from the leverage. Conversely, a loss can also be large, relative to the margin, due to the leverage.


  1. In the broad legal sense, responsibility or obligation. For example, a person is liable to pay his debts, under the law.
  2. In accounting, any debt owed by an individual or organization. Current, or short-term, liabilities are those to be paid in less than one year (wages, taxes, accounts payable, etc.). Long-term, or fixed, liabilities are those that run for one year or more (mortgages, bonds, etc.).
  3. In futures, traders deposit margin as earnest money, but they are liable for the entire value of the contract.
  4. In futures options, purchasers of options have their liability limited to the premium they pay; option writers are subject to the liability associated with the underlying deliverable futures contract.

Limit: See Price limitPosition limit, and Variable limit.

Limit move: The increase or decrease of a price by the maximum amount allowed for any one trading session. Price limits are established by the exchanges, and approved by the CFTC. They vary from contract to contract.

Limit order: A trading order placed with a broker to buy or sell stock or options at a specific price.

Limit orders: A customer sets a limit on price or time of execution of a trade, or both; for example, a “buy limit” order is placed below the market price. A “sell limit” order is placed above the market price. A sell limit is executed only at the limit price or higher (better), while the buy limit is executed at the limit price or lower (better).

Limit Price: Also known as “price limit.” Some futures contracts’ price movements are restricted by the exchange on which they are traded. They are limited to a range that is plus or minus a specified amount relative to the prior day’s settlement price. For example, corn on the CBOT has a limit of plus or minus 20 cents. Corn is not allowed to trade more than 20 cents up or 20 cents down from the prior day’s settlement price. In short, the limit price is the maximum amount a contract’s price is permitted to move during a trading session.

Limited risk: A concept often used to describe the option buyer’s position. Because the option buyer’s loss can be no greater than the premium he pays for the option, his risk of loss is limited.

Limited risk spread: A bull spread in a market where the price difference between the two contract months covers the full carrying charges. The risk is limited because the probability of the distant month price moving to a premium greater than full carrying charges is minimal.

Line-bar chart: See Bar chart.

Liquidate: Refers to closing an open futures position. For an open long, this would be selling the contract. For a short position, it would be buying the contract back (short covering, or covering his short).

Liquidity (liquid market): A market which allows quick and efficient entry or exit at a price close to the last traded price. The ability to liquidate or establish a position quickly is due to a large number of traders willing to buy and sell.

Liquidity / liquid market: A trading environment characterized by high trading volume, a narrow spread between the bid and ask prices, and the ability to trade larger sized orders without significant price changes.

Listed option: A put or call traded on a national options exchange. In contrast, over-the-counter options usually have non-standard or negotiated terms.

Locals: The floor traders who trade primarily for their own accounts. Although “locals” are speculators, they provide the liquidity needed by hedgers to transfer the risk of price change.

Long: One who has purchased futures contracts or the cash commodity, but has not taken any action to offset his position. Also, purchasing a futures contract. A trader with a long position hopes to profit from a price increase.

Long hedge: A hedger who is short the cash (needs the cash commodity) buys a futures contract to hedge his future needs. By buying a futures contract when he is short the cash, he is entering a long hedge. A long hedge is also known as a substitute purchase or an anticipatory hedge.

Long option position: The position of an option purchaser (owner) which represents the right to either buy stock (in the case of a call) or to sell stock (in the case of a put) at a specified price (the strike price) at or before some date in the future (the expiration date). It results from an opening purchase transaction — e.g., long call or long put.

Long stock position: A position in which an investor has purchased and owns stock.

Long-dated options: In English, this means calls and puts with an expiration as long as thirty-nine months. Currently, equity LEAPS have two series at any time with a January expiration. For example, in October 2000, LEAPS are available with expirations of January 2002 and January 2003.

Long-the-basis: A person who owns the physical commodity and hedges his position with a short futures position is said to be long-the-basis. He profits from the basis becoming more positive (stronger); for example, if a farmer sold a January soybean futures contract at $6.00 with the cash market at $5.80, the basis is -.20. If he repurchased the January contract later at $5.50 when the cash price was $5.40, the basis would then be -.10. The long-the-basis hedger profited from the 10> increase in basis.

Low: The smallest price paid during the day or over the life of the contract.

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