Know About Common Binary Option Terms through Binary Options Glossary
When you are attempting to carry out the binary options trading, you will come across many terms and phrases that you have not heard in your life before. It is very important for you to know some of the common terms and phrases used in binary options trading before stepping into the binary options trading league.
The following are some of the most common terms and phrases that will help you get started and to do well in binary options trading.
This is the price that a seller is asking for an asset or a security or is the price that an investor is willing to part from his end for the asset.
The asset is the item that you are trading on and is often referred to as the underlying asset. The examples of assets include: Commodities (Gold, Silver, Oil, etc.), Currency pairs (USD/EUR, USD/GBP, etc.), Indices (Dow Jones, S&P 500, etc.) and Stocks (Google Inc, BMW, Mercedes Benz, etc.)
At The Money
This is a unique situation in binary options trading where the purchase price of the trade ends up being the same price at the close of the trade. The trader will not encounter any gain or loss for this trade.
This term is used to describe a stock or a financial market’s price is on the decline.
The investor will be able to sell an asset or security at the bid price. This is the price at which a potential buyer is ready to buy your asset.
Binary options or digital options or all-or-nothing options give you only two outcomes, either you win or you lose and hence it is termed as binary. The trader will predict the direction of the trade for a particular asset or security and the payouts is fixed after the asset meets or exceeds the predetermined threshold price.
You should register your account with a broker before you start binary trading options. A broker will host the binary trading platforms from where you will be able to carry out your trades.
If the prices of a group of securities are rising or is expected to rise in a financial market, then it is said to be a bullish market.
Buy Me Time
This feature will permit you to add time to your opening positions as well as extend their expiration period. You will be buying time to improve your success ratio.
A trade that closes at a higher price than what it is purchased for is known as a call option.
Close means that it is the end of the trading day and it is the time for the final prices of the day to be calculated.
Commodity is a general term given to the raw materials produced by various sectors like food, metals, etc., that is used in trading. Examples are: Oil, Coffee, Silver, Gold, etc.
Currency is an asset that you use to trade. The currencies are traded in pairs like USD/GBP, USD/EUR, USD/ASD and many more.
A trader who opens single option positions or multiple option positions and ends it within the same trading day is called a day trader.
The deposit is the term given to the funds that you add to your trading account to carry with trading. The adding of the funds to your trade account is called the deposit.
Early closure is when a trader closes an option immediately before it gets expired and before a contract ceases.
The Expiration Time is the time at which an option expires. The option that is expired is void and cannot be traded. The expiry times of binary options can be: 1, 15, 30 and 45 minutes or an hour, 24 hours or weekly.
This means that the profit amount never changes, even if the asset value changes.
One of the basic ways to evaluate stocks is the fundamental analysis. This analysis is on the basis of the current political and economic data. An asset is analyzed by taking a look into various factors that could affect its price like weather, global economic conditions, financial policy, etc.
Hedging is a risk management strategy that is employed to offset or limit the loss probability from the variations in the prices of currencies, commodities or securities. It involves taking equal and opposite positions in two different markets to reduce the loss.
The index represents a broad portion of a particular market. It can also be focused on any particular industry. Its examples are: Dow Jones, Japanese Nikkei, American Nasdaq, French CAC, British FTSE, etc.
It is the amount that a trader puts from his pocket to buy an option.
In The Money
In the Money is a term used in binary trading when the purchased option by a trader turns profitable from the trader. If you make a high (call) option and the option’s price go beyond the target price during expiration, then the option is known as in-the-money option. This term is often used to describe a winning trade.
Last Trading Day
The last trading day is the last day where you will be able to open or close a trade in a market. It has got nothing to do with the expiry date in trading.
This is a term used when the underlying asset expires outside the set lower and higher price limits of the target prices.
Out of the Money
If the strike price of a call option is greater than the market price for an underlying option after its expiration, then it is known as the out of the money option. This term normally means a loss for the trader as he or she makes no gain with the trading.
The financial profit or return that you get when a contract expires is known as the payout.
This is the place where the brokers of binary trading allow traders to execute their trades. There are several types of major platforms and most of them perform in a similar fashion, yet each one has its own unique feature.
You can opt for binary put options if you believe that the value of the item that you are trading with will decrease in price before the expiration time of the option. If the strike price decreases during that time period, you stand to win money based on the percentage set before you started bidding.
If your option expires at-the-money, you will get a portion or the full amount that you have invested as a refund. If the option expires out-of-money option, then the broker might even refund you a portion of your investment in the binary trading and that would be around 15%.
This is a price level beyond which the security or the market price will not rise.
Return is the money that you will be making after the expiry of an option. The return will depend on the item that you are trading with as well as the brokers. The return value will be mentioned to you before you make a purchase so that you will always know whether you can make a gain or stand to lose through the binary trading. For example: if you invest $100 and the return for it is 25%, then you will gain $125 after the expiration of the option.
This is the place where shares and stocks and other securities are sold and bought.
This is a term given to the asset of a particular company that is available for trade in the financial stock market. Examples: Vodafone, Barclays, Google Inc, Apple Inc, Facebook, etc.
The strike price of an underlying asset is the price at which the call or the put option is exercised. One of the key decisions that a trader needs to do is to pick the strike price. The strike price has a good control over the option trade.
This is a helping tool that will allow you to check out the other trader’s position directions and you can even mimic the behavior of the other trader to your advantage.
This is the range between the lowest and the highest prices where the actual stock is traded.
This is an asset that forms the basis of an option and they include indices, stocks, currency pairs and commodities. The underlying assets are not limited to the above mentioned asset types.
The rapid changes and the huge fluctuations that the financial market sees is called volatility.
Binary trading options is not just about making investments, it also involves withdrawal or getting the money out of your trading account. The withdrawal from your trading account can happen at any time and largely depends on the broker, the method opted for withdrawing money and also the cost.
Have we left out any binary options terms from this glossary or the definition is wrong? Let us know via the contact form and we will add some new terminology if need be.