Glossary of A-B
It is important for all investors and traders to be familiar with some of the oil trading terms.

Oil Trading Terms and Their Definitions
Here is a reference guide of oil trading terms:

• Alternative Delivery Procedure (ADP) – The provision in an oil futures contract that permits traders to make and take delivery under terms that differ from those mentioned in the contract.
• American-style option – This type of option can be exercised at any time before (and including) its expiry date.
• Arbitrage – This refers to trading oil with the objective to profit from price differentials between two markets.
• Asian option – This is also called average option. In this, the payoffs depend on an average of oil prices over a period of time, rather than on a single date.
• Ask price - Average of all prices asked by sellers at a particular time. It is also called selling price or offer price.
• At-the-market – This is an order (given by the trader) to buy or sell an oil futures contract at any price when the order reaches the trading floor. This is also known as a market order.
• Back month contracts – Oil futures contracts that are not from the nearest contract month.
• Basis point - One hundredth of a percent. This is typically used for measurements whose value changes over time.
• Barrel - A unit of measurement used for crude oil. It is equal to about 42 gallons and abbreviated as bbl.
• Benchmark crude – The type of crude oil whose price is used as a reference for quoting the price of other crude oils. It is also called reference crude or marker crude.
• Bid price - Average of all prices asked by buyers at a particular time. It is also called purchase price.
• Broker – One who acts as an intermediary between investors and the exchange.
• Buying hedge – This refers to buying oil futures contracts to protect against the risk of an increase in oil prices in the future. It is also called a long hedge.

For more glossary on oil trading terms, click here.