Binary Options Glossary

trading glossaryThinking of making your first binary options trade? Well, before you do so, it is important that you learn about the different terms used in the industry.

 


Asset

These are the underlying financial instruments used to determine the strike price of the contract. They are generally categorized as commodities, stocks, currency pairs of indices.


Asset value

As the name implies, this is the price of the underlying asset at any period in time.


At-the-money

This term is used to describe a neutral loss and gain wherein the value of the asset is roughly the same as it was when it was purchased.


Binary options

These are options which allow traders to earn a fixed amount if the value of the underlying asset reaches above or below the strike price when it expires.


Call option/call contract

It is one of the two option choices. If a trader believes that the value of the underlying asset will reach a higher value at the time of expiry, then they can purchase a call option.

Commodity options

The trading of resources such as gold, oil and grains. Popular assets to trade as less volatile than other areas such as forex options. You can learn some commodity trading strategies here.


Current price

This is the price of the asset in near real time. Current prices are often delayed by 15 minutes or more and are typically provided by companies offering free price information.


Digital options

Another name used for binary options. It is a type of option which has fixed payout and fixed loss.

 

Expiry price

This is the price of the asset when the contract expires. In the above-below binary trading, an option is determined aseither in-the-money or out-of-the-money based on the expiry price of the underlying asset.


Expiry time

This is the date and time when the option expires. It can be hourly, daily, weekly, or monthly, depending on the broker offering the binary options contract.


Exotic options

These are types of options used exclusively by big time traders before they were available to the public. Binary options are simplified versions of exotic options.

Forex options

The speculation of currency trading without the obligation to purchase currency or sell currency. Trade on the  movement of price differences between currency pairs such as EURUSD. Read Forex trading strategy here


Futures

These are a class of indirect securities which are also contracts to buy or sell a commodity at a specific time in the future. A strict futures requires the holder to buy or sell the commodity while the futures option allows them the choice to do so.

 


Fundamental analysis

This is one of the major types of analysis which is used for trading in the financial markets. In fundamental analysis, traders examine macroeconomic data such as central bank decisions, economic growth, political events and even geologic events to determine the direction of the asset value.


Investment amount

This is the amount of money used to purchase the binary options contract. It is the money at stake for a put or call option.


In-the-money

This is a term used to describe when an investor reaches a position when they realize profit. This happens if a call option was purchased and the expiry price is higher than the current price or if a put option was purchased, the investment is in-the-money if the expiry price is lower than the current price.


Instrument

Another term used for assets.


Over-the-counter

These are products, assets or instruments which are sold directly between two parties. The term is used to differentiate trading with intermediaries such as brokers and exchange trading. Binary options are offered in several exchanges but are primarily sold as over the counter products online.


Out-of-the-money

This is a term used to describe when an investor reaches a position where they experience loss. This happens if a call option was purchased and the expiry price is lower than the current price or if a put option was purchased, the investment is out-of-the-money if the expiry price is higher than the current price.


Payout

The profit realized when the contract expire in-the-money. In binary options, payout is generally between 75% up to 81%.


Put option

It is one of the two option choices. If a trader believes that expiry price is lower than the current price, then they can purchase a put option.


Strike option

Generally speaking, this is the term used to describe the price at which the contract option for an asset can be exercised. In binary options, it refers to the value of the asset at point-of-sale. It is also the price used to describe whether an option is in-the-money or out-of-the-money in the case of above-below option. In the case of touch option, it refers to the value that the asset must reach for the contract to be in-the-money.


Technical analysis

This is one of the major types of analysis which is used for trading in the financial markets. In technical analysis, traders believe that the prices of assets depend on the market price and that these price fluctuations form a pattern.

 

Binary Options Glossary a été modifié en dernier le October 6th, 2016 par Alex Pearl

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