Binary Options Glossary

Binary option – binary options are also called digital options or fix return options. When trading binary options investor needs to make a financial prognosis of the price direction in a specific time frame (up or down) of the underlying asset that he chose. For example if oil was chosen as an underlying asset and the end of the day as an expiry time then binary options trader needs to predict whether the oil price will be higher by the end of the day or lower. When trading binary options investor knows his potential return and risks in advance, that makes binary option trading one of the safest ways to trade.

Call-option – Call-option should be purchased by trader if he thinks that the price of the underlying asset will grow in the near future and that by the time of the option expiration it will be higher than the strike-price.

Put-option – Put-option should be purchased by trader if he thinks that the price of the underlying asset will fall in the near future and that by the time of the option expiration it will be higher than the strike-price.

Underlying asset – underlying asset in binary option trading can be stocks, indices, commodities or currency pairs that constitute the basis for creating an option.

In-the-money – this term means that investor’s financial prognosis was correct during or after the trade. In other words if you bought binary option on Apple stocks and predicted it’s growth by the end of the month, so if during this month and by the expiration time the stocks are going up in price then congratulations, you are in-the-money. If the option expires while you are in the money, you receive 65-75% payout from your investment.

Out-of-the-money – this term is opposite to the in-the-money term and means that the prediction of the investor was not correct. It is important to notice that even though the prediction was not correct investor usually doesn’t lose all the money as most of the binary option platforms give back to traders up to 15% of their investment.

Expiry time of the option – in binary options trading there are 4 expiry times: the end of the hour, the end of the day, the end of the week and the end of the month. It means that when choosing the expiry time investor chooses the time by which he thinks his prognosis will be correct. In other words expiry time is a moment at which it is determined whether investor is in-the-money or out-of-the-money.

Expiry level of the option – in binary options trading expiry level is a level at which the asset’s price is at the expiry time of the option. It means that if the trader bought an option with the expiry time the end of the hour, then price of the asset exactly at the end of the hour will be the expiry level. Expiry level is being compared to the strike-price and thus it is defined weather the prognosis of the investor was correct or not.

Strike price – price of the underlying asset at the moment of the option purchase. At the expiration time of the option the strike price is being compared to the expiration level and thus it is determined whether the investor’s financial prognosis was correct or not.

Commodity option – binary option based on commodities. On the commodity market there are being traded over 100 commodity types, but binary options platforms usually offer the most popular ones like oil, gold, silver, coffee, sugar, etc.

Forex option – binary option based on currency pairs. Usually when trading Forex binary options investors have a choice of the currency pairs from the group called “Major” which includes such pairs as EUR/USD, USD/JPY, GBP/USD etc.

Stock option – binary option based on stocks. Usually binary option traders have a wide choice of the options on stocks of the biggest corporations of Europe, USA, Asia and Latin America – Microsoft, Coca Cola, Apple, Toyota, etc.

Index option – binary option based on the indices such as Dow Jones, S&P 500, DAX, etc.

Deposit – amount of money that trader needs to deposit on his account on trading site/platform in order to start trading. Deposit amount usually variesfrom country to country and is different in every platform, but standard deposit amount usually is $100.

Investment – amount that trader invests in option purchase. Usually the minimum investment amount is $25. The profit that trader earns after a successful trade is a percent from the investment. So the larger the investment is, the larger the profit is. Investor cannot lose more than he invested in one trade. Moreover, usually there is some % from investment that binary trader gets back if the trade wasn’t successful.

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2 Comments + Add Comment

  • that’s a good glossary – much better then the one I just read in 24option binary options glossary

    I don’t really know what’s going on with this broker – is it that good? (I’m talking about 24option)

    • Hi Donnie! Actually I am now trading with 2 brokers (24options and anyoption) the reason is simple – platform 24options has 60 seconds, 2minutes and 5 minutes trading and I just love it! At the same time at anyoption they have some cool stuff like Live trend, etc. But in my opinion broker 24options is the best – they make payouts very quickly, have great support and lots of trading instruments. But it’s up to you to decide =) Good luck with trading!!

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