Back Months
Those futures delivery months with expiration or delivery dates furthest into the future; futures delivery months other than the spot or nearby delivery month.

Backwardation
Under the theory of normal backwardation, futures prices will tend to rise over the life of a contract because hedgers tend to be short the futures market. Hedgers tend to be short the futures contract as insurance against their cash position. The hedgers will pay the speculators a return to hold long positions in order to offset their risk. This is known as normal backwardation. A market is considered to be in backwardation when the cash price exceeds the future price or a nearby futures price is greater than a more distant futures price. If the reverse is true and hedgers are long futures contracts, the futures contract price would decline over its life. This situation is known as contango. For there to be normal backwardation, speculators must be long futures contracts. Only in this manner will the futures price continue to rise as more speculators need to be compensated for their risk exposure. Conversely, for there to be contango, speculators must be net short futures contracts. Only in this manner will the futures price continue to decline over its life for the speculator to be rewarded for his exposed risk.

Bare Trust
Also known as dry, formal, naked, passive or simple trusts. The trustees have no duties other than to convey the trust properly to the beneficiaries when called upon to do so.

Basis
The difference between the spot or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity. Basis is usually computed in relation to the futures contract next to expire and may reflect different time periods, product forms, qualities, or locations.

Basis Grade
The grade of a commodity used as the standard or par grade of a futures contract.

Basis Risk
The risk associated with an unexpected widening or narrowing of basis between the time a hedge position is established and the time that it is lifted.

Bear Spread
The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation does not materialize. In agricultural products, this is accomplished by selling a nearby delivery and buying a deferred delivery.

Bear Vertical Spread
A strategy employed when an investor expects a decline in a commodity price but at the same time seeks to limit the potential loss if this expectation is not realized. This spread requires the simultaneous purchase and sale of options of the same class and expiration date but different strike prices. For example, if call options are spread, the purchased option must have a higher exercise price than option that is sold.

Beta
A measure of the relationship of a fund's movement relative to a benchmark, such as a market index. Beta is the correlation (a measure of the statistical relationship between fund and benchmark) multiplied by the magnitude of relative volatility of the fund to the benchmark. A fund with a beta of 1.2 relative to a benchmark, for example, is expected to move 12% when the benchmark moves 10%. When the fund is comprised of the same instruments as the benchmark, beta can be thought of as a measure of relative volatility. A low beta does not necessarily indicate that the fund has low volatility, rather, it may indicate that the fund's returns are not related to the movement of the market benchmark.

Blocked Funds
Term for reserving funds by one bank for the benefit of another bank. Blocking of funds is a commonly used banking procedure to ensure that the same funds are not used twice. Often more beneficial to an investor than a bank guarantee.

Booking the Basis
A forward pricing sales arrangement in which the cash price is determined either by the buyer or seller within a specified time. At that time, the previously-agreed basis is applied to the then-current futures quotation.

Box Transaction
An option position in which the holder establishes a long call and a short put at one strike price and a short call and a long put at another strike price, all of which are in the same contract month in the same commodity.

Bucketing
Directly or indirectly taking the opposite side of a customer's order into a broker's own account or into an account in which a broker has an interest, without open and competitive execution of the order on an exchange.

Bull Vertical Spread
A strategy used when an investor expects that the price of a commodity will go up but at the same seeks to limit the potential loss should this judgement be in error. This strategy involves the simultaneous purchase and the sale of options of the same class and expiration date but different strike prices. For example, if call options are spread, the purchased option must have a lower exercise or strike price than the sold option.

Butterfly Spread
A three-legged spread in futures or options. In the option spread, the options have the same expiration date but differ in strike prices. For example, a butterfly spread in soybean call options might consist of two short calls at a $6.00 strike price, one long call at $6.50 strike price, and one long call at a $5.50 strike price.