Binary Options Glossary – Terms and Definitions
Binary Trading Glossary
When you first start trading binary options, you’ll come across numerous words and phrases that might be unfamiliar to you. It’s important to learn what they mean. Below, we’ve compiled the most commonly used terms so you can hit the ground running. Note that the binary trading lingo found on this page covers all of the major binary options platforms.
Asset – The instrument that underlies the trade. Binary options are traded based on stocks, commodities, currency pairs, and indices.
At The Money – Describes a binary option for which the price at expiration equals its strike price. There is no gain or loss for the trader.
Broker – Binary options brokers host the trading platforms from which you can execute trades. Before you can trade binary options, you must register an account with a broker.
Call Option – A type of binary option that becomes profitable when the unit price of the underlying asset rises above its strike price at expiration.
Charting – The practice of plotting an option’s price at successive points in time. It is a tool often used to aid in technical analysis.
Commodities – Basic goods that are either grown – e.g. sugar, coffee, etc. – or mined (or drill) – e.g. gold, oil, etc.
Currency Pair – A FOREX rate determined by matching the value of one currency to the value of another currency. For example, the Euro and US Dollar form a currency pair (EUR/USD). The price of the binary option changes as the exchange rate between the two currencies moves up and down. http://www.binarytrading.org/trading-school/beginner/forex/
EMA’s / Estimated Moving Averages – indicators you can use to see moving averages of underlying assets price movements.
Expiry Time or Expiration – The point at which the binary option expires. The underlying asset’s price at expiration is compared to its strike price to determine whether the trade is in the money, out of the money, or at the money. Every binary option comes with a predetermined expiry time.
Fibonacci Retracements – Fibs or fib lines are created via measuring very specific points in a price movement. These are used as an indicator to help determine what a price is likely to do. http://www.binarytrading.org/guide/fibonacci-retracements/
Fundamental Analysis – A method of analysis that uses macroeconomic and microeconomic data to forecast the future price of an underlying asset. Macroeconomic signals include interest rates, unemployment rates, and inflation. Microeconomic factors are those that affect supply and demand.
In The Money – Describes a binary option that is profitable for the trader. For a call option to be in the money, the underlying asset’s price at expiration must be greater than its strike price. For a put option to be in the money, the asset’s price at expiration must be less than its strike price.
Index or Indices – Comprised of multiple stocks. The index’s value reflects the individual prices of the underlying securities. Examples include the Dow Jones Industrial Average (DJIA), S&P 500, and Nikkei 225.
Market Price (Of Underlying Asset) – The current quoted price of a binary option’s underlying asset.
Touch / No Touch Binary Option – A type of binary option for which the trader predicts whether the underlying asset’s price will reach a specific target price prior to expiration. A touch binary option (sometimes called a one touch option) is in the money if the asset’s price reaches the target, even if it drops below before expiration. A no touch binary option is in the money if the asset’s price fails to reach the target. http://www.binarytrading.org/trading-school/beginner/touch-no-touch-options/
Out Of The Money – Describes a binary option that produces a loss for the trader. A call option is out of the money when the price of its underlying asset at expiration is less than its strike price. A put option is out of the money when the asset’s price at expiration is greater than its strike price.
Platform – Used by binary options brokers to allow individual traders to executes trades. Although the major platforms are similar in many ways, each also presents unique features.
Put Option – A type of binary option that becomes profitable when the unit price of the underlying asset falls below its strike price at expiration.
Range Option (Boundary Option) – A type of binary option for which the trader predicts whether the underlying asset’s price will end within a specified price range, or outside of it.
Rebate or Refund – The amount returned to the trader if a binary option expires out of the money. Typically, the rebate is expressed as a percentage of the investment amount.
Strike Price – The price of the underlying asset at the time a binary option is exercised.
Technical Analysis – A method of analysis that uses previous market data to identify trends and forecast the future price of an underlying asset. Signals like trading volume and price are charted in order to note probabilities of future price performance.
Trading Minimum – The minimum amount required to execute a binary option. This amount varies by broker http://www.binaryoptionsblacklist.com/trading/minimums/.
It’s unnecessary to memorize the definitions provided above. Instead, become reasonably familiar with them and refer to this page whenever the need arises.