FAB Spread
Five Against Bond. A futures spread trade involving the buying (selling) of a five-year Treasury bond futures contract and the selling (buying) of a long-term (15-30 year) Treasury bond futures contract.

FAN Spread
Five Against Note. A futures spread trade involving the buying (selling) of a five-year Treasury note futures contract and the selling (buying) of a ten-year Treasury bond futures contract.

Feed Ratio
The relationship of the cost of feed, expressed as a ration to the sale price of animals, such as the corn-hog ratio. These serve as indicators of the profit margin or lack of profit in feeding animals to market weight.

First Notice Day
According to Chicago Board of Trade rules, the first day on which a notice of intent to deliver a commodity in fulfillment of a given month's futures contract can be made by the clearinghouse to a buyer. The clearinghouse also informs the sellers who they have been matched up with.

Fixed Income Arbitrage
The fixed income arbitrageur attempts to profit from price anomalies between related interest rate instruments. The majority of managers trade globally, although a few just focus on the US market. In order to generate returns sufficient to exceed the transaction costs, leverage may range from 10 times up to 150 times NAV employed. Genuine fixed income arbitrageurs typically aim to deliver steady returns with low volatility, due to the fact that the directional risk is mitigated by hedging against interest rate movements, or by the use of spread trades. Fixed income arbitrage can include interest rate swap arbitrage, US and non-US government bond arbitrage, forward yield curve arbitrage, and Mortgage Backed Securities Arbitrage.

Floor
A contract whereby the seller agrees to pay to the purchaser in return for the payment of a premium, the difference between current interest rates and an agreed (strike) rate times the notional amount, should interest rates fall below the agreed rate. A floor contract is effectively a string of interest rate guarantees.

Forfaiting
The process of purchasing at a discount letters of credit or similar documents held as payment for goods sold to foreign buyers. This has the effect of giving exporters earlier payment by paying a premium to the forfaiter.

Forwardation
See Contango.

Forward (Cash) Contract
A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the near future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

Forward foreign exchange contract
An agreement between two parties to set exchange rates in advance

Forward rate agreement ( FRA )
An agreement between two parties to set future borrowing / lending rates

Full Carrying Charge Market
A futures market where the price difference between delivery months reflects the total costs of interest, insurance and storage.

Funds of Funds
The hedge fund industry's closest equivalent to a mutual fund, the majority of funds of funds invest in multiple hedge funds (5 to 100) with different investment styles. The objective is to smooth out the potential inconsistency of the returns from having all of the assets invested in a single hedge fund. Funds of funds can offer an effective way for an investor to gain exposure to a range of hedge funds and strategies without having to commit substantial assets or resources to the specific asset allocation, portfolio construction and individual hedge fund selection. A growing number of style or category specific funds of funds have been launched during the past few years. For example, funds of funds which invest only in Event Driven managers; or funds of funds which invest only in Equity Market Neutral style managers.

Fungibility
The characteristic of interchangeability. Futures contracts for the same commodity and delivery month are fungible due to their standardized specifications for quality, quantity, delivery date and delivery locations.

Futures Commission Merchant (FCM)
An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as commission house or wire house.

Futures Contract
A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange trading floor.

Futures-equivalent
A term frequently used with reference to speculative position limits for options on futures contracts. The futures-equivalent of an option position is the number of options multiplied by the previous day's risk factor or delta for the option series. For example, 10 deep out-of-money options with a risk factor of 0.20 would be considered 2 futures-equivalent contracts. The delta or risk factor used for this purpose is the same as that used on delta-based margining and risk analysis systems.