Pairs Trading
An investment strategy that seeks to identify two companies with similar characteristics whose equity securities are currently trading at a price relationship that is out of their historical trading range. Investment strategy will entail buying the undervalued security, while short selling the overvalued security.

Partnership Agreement
Legal document that sets forth the terms and conditions of a private equity or hybrid investment vehicle. The partnership agreement also establishes the roles of general and limited partners.

Path Dependent Option
An option whose valuation and payoff depends on the realized price path of the underlying asset, such as an Asian option or a Lookback option.

Pegging
Effecting commodity transactions to prevent a decline in the price of the commodity so that previously written put options will expire worthless, thus protecting premiums previously received.

Performance Bond Margin
The amount of money deposited by both a buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit.

Percent Long
The amount of a fund, expressed as a percentage, that is invested in long positions.

Percent Short
The amount of a fund, expressed as a percentage, that is invested in short positions.

Performance Fee
Compensation paid to a manager who achieves returns above a high water mark or a hurdle rate. Sometimes referred to as an incentive fee.

Position Limit
The maximum number of speculative contracts one can hold as determined by the Commodity Futures Trading Commission and/or the exchange upon which the contract is traded. Also referred to as trading limit.

Price Basing
A situation where producers, processors, merchants or consumers of a commodity establish commercial transaction prices based on the futures prices for that or a related commodity (e.g., an offer to sell corn at 5 cents over the December futures price). This phenomenon is commonly observed in grain and metal markets.

Prime Broker
A broker who provides services to hedge funds in addition to trade execution, including some or all of back office, trade reconciliation, financing, recordkeeping and custody.

Principals' Market
A market where the ring dealing members act as principals for the transactions they conclude across the ring and with their clients.

Prompt Date
The date on which the buyer of an option will buy or sell the underlying commodity (or futures contract) if the option is exercised.

Proof of Funds (POF)
A document by which the principal's bank states that the principal owns the funds required for the transaction. Usually, proof of funds can also be delivered in the form of a recent bank, security or custody statement.

Protector
A person appointed by the settlor/grantor of a trust, who has limited powers to control the trustee. The protector usually has the right to change trustees.