Definition
The term ex-pit transaction refers to a commodity transaction that takes place away from the floor of the exchange where it would normally occur. Ex-pit transactions typically involve the cash market and a private deal between two hedgers.
Explanation
An ex-pit transaction involves the trading of a commodity contract away from the floor where it is normally traded. For example, the closing out of a futures position off the exchange floor. These deals are effective when two traders wish to close out their positions and they hold equal and opposite futures contracts as a hedge.
As part of this process, the hedgers would contact the exchange and request their contracts be canceled without making a trade. By doing so, their contracts cannot be called upon to deliver the commodity. Communicating with the exchange also ensures open interest in their contracts reflect the closing out of their positions.
Related Terms
The term execution refers to a transaction that completes buy or sell orders for a security or futures contract. The execution of an order is typically facilitated by a third party, such as a broker.
Moneyzine EditorNovember 6th, 2024
The term exercise refers to the right granted in an options contract which allows the holder to buy or sell the underlying asset. American options allow the holder to exercise this right any time before the contract expires.Moneyzine EditorNovember 6th, 2024- The term price improvement refers to the process of obtaining a lower than offer price when buying a security or a higher than bid price when selling a security. Price improvement is one of the possible outcomes from a broker's duty of best execution.Moneyzine EditorNovember 6th, 2024
- The term payment for order flow refers to the compensation received by brokers from third parties when an order is routed to the third party for execution. Payment for order flow is one of several ways a broker is compensated when an investor places a buy or sell order.Moneyzine EditorNovember 6th, 2024
The term duty of best execution refers to the legal responsibility of a broker to provide the most favorable terms when executing an order on behalf of an investor. Factors a broker should consider under their duty of best execution include price, speed, and likelihood of execution.Moneyzine EditorNovember 6th, 2024
The term assigned refers to the process whereby the writer, or seller, of an option is asked to fulfill their obligation under their contract. When assigned, an option writer has the obligation to either sell or buy the underlying asset at the agreed to price.Moneyzine EditorNovember 6th, 2024
