Binary Options Trading Dictionary

In the financial world of binary options, there are about couple dozens terms you will hear or read about in the media and during the course of day to day conversation with other traders. The following is a list of those terms and what they mean. These terms will go a long way in helping you navigate your way around in the world of binary options trading to improve your chances of making a profit. 

Asset/Underlying Asset

Asset is the type of item that you are trading. This the asset in which you are purchasing an option against such as; currencies, commodities, indices and stocks. 

At the Money/On the Money

This is the position in which the option is in when it expires neither "in-the-money" or "out-of-the-money" but at the same price in which it was purchased. Your invested amount is refunded to you when this happens. There is no profit or loss.

Bearish Market

The term is used to describe the condition of a financial market or stock who's price is trending downward.

Binary Options

Also called digital options, or all-or-nothing options, are contracts which have only two possible outcomes - either they win or they lose. A binary option involves a fixed payout after the asset meets or exceeds its predetermined strike price. Values of binary options payouts are determined at start of the contract and aren't affected by the magnitude of the movement of the asset value. Binary call options pay the predetermined amount providing the price of the asset exceeds the strike price at expiration. Similar, binary put options pay the predetermined price if the price of the asset is trading less than the option strike price at expiration. 

Boundary/Range Instrument

A boundary or range instrument is an option that allows a trader to decide whether the price if the asset when the option expires will be inside or outside a specified range. 

Broker

In binary options trading a broker is the web-based interface where traders make a contract to purchase options.

Bullish Market

The term is used to describe the condition of a financial market or stock who's price is trending upward.

Call Options /High Options

This the choice a binary iotions trader choose if he predicts that the value of the item he is trading at will increase in price by the time of his chosen expiration. If the strike price increases in that time, you earn money based on the percentage set prior to bidding.

Commodities

A commodity is usually a physical item like Oil, Sugar, Gold, Silver, Wheat and Cotton and the price of these is determined by economic factors.

Currency

Currencies are traded in pairs and common examples of these are: USD/GBP, USD/EUR, USD/CAD and many more. The EUR/USD currency pair is the most popular asset traded in binary options trading. Other currency pairs that do not have the USD paired with them are called cross-currency pairs.

Current Price/Msrket Price

This is the current price of the underlying asset which is reported in “real time” without delay typically by a data provider. Some brokers report results that can be delayed and this is often mention in their terms and conditions.

Deposit

Before you can start trading you need to add funds to your trading accounteven though you can join and refister to them for free. This adding of funds is called a deposit. Different brokers offer varying minimum deposits anywhere from $100 up to around $500. The most common minimum amount is $200.

Early Closure

Early closure is where a trader has the ability to close an option and immediately ending the contract to prevent further losses of their investment. All brokers do not have this feature.

Expiry Time

This is the time and date at which the option you have purchased will expire and the trading stops. With binary options, expiry times are shorter than traditional investments and can be any of the following, 60 seconds, 2min, 5min, 10min, 15min, 30min, 45min, 1hr, 24 hr and weekly. the 10min and 15min expiry time are the most popular in binary options trading.

Index Option

Index Binary is an option whose underlying asset is that of an index. These can include such assets as: FTSE-100, Dow Jones, Nasdaq-100 and many more.

Instrument/Financial Instrument

Another name used for underlying asset.

In the Money

This term refers to the point when a purchased option ends as a gain and the trader makes a profit. An option is in-the-money if you place a "Call" option and the options price expires above the target price. If a "Put" option is placed then you are in-the-money when the options price expires below the target price.

One Touch Option

A one touch option is where you predict whether the underlying assets value will reach a target value when the option expires. If it does reach the target value then you are 'in-the-money' otherwise you fall short and are "out-of-the-money".

Out of the Money

This is basically the opposite of "In the Money".This term refers to the point when a purchased option has no gain and the trader makes a loss on their investment. An option is out-of-the-money if you place a "Call" on the option and the options price expires below the target price. If a "Put" option is placed then you are out-of-the-money when the options price expires above the target price.

Put Options/Low Options

This the choice a binary iotions trader choose if he predicts that the value of the item he is trading at will decrease in price by the time of his chosen expiration. If the strike price decreases in that time, you earn money based on the percentage set prior to bidding.

Stock

A stock is the stock of a specific company which are available to trade on the financial stock market. Examples of stock include: Apple Inc, Google Inc, Facebook, BP, Barclays and Vodafone.

Strike Price

Sometimes called the target or purchase price. It is the price of the underlying asset at the time at which you purchase the option. When the option expires, the new price of the underlying asset  at the time of expiry is compared to the strike price to determine whether you have made a profit from your option your or lost your investment.