New to binary options trading? Interested to boost your knowledge and learn how to efficiently trade online? We can help! BinaryOption.com has prepared an extensive binary options glossary with the most commonly used terms and phrases in digital trading. The reference list below will provide you with helpful information which will come in handy during your first trades. Read on to learn the terminology used in options trading.
- Digital Options
- Asset/Underlying Asset
- At the Money
- In the Money
- Out of the Money
- Call Option
- Put Option
- Range Option
- Touch Option
- Current Price
- Strike Price
- Deposit Withdrawal
- Expiration Time
- Fundamental Analysis
- Technical Analysis
Digital options and all-or-nothing options are synonyms for binary options. These’re options with a fixed payout. Digital options enable you to gain a profit in the range from 75% to 85% depending on your broker. In order to acquire the payout of a contract, the underlying asset must either exceed or fall behind its strike price. The amount of the payout you can receive when trading digital options doesn’t depend on the extent by which an asset’s price moves. As long as you’re “in the money” your profit will be the same.
An asset or as most traders call it, an underlying asset, is the type of item you’re trading on. Essentially, this is a financial instrument on which you’re purchasing a digital option. In binary options, assets can be stocks, future, currencies, indices and commodities. Examples of assets include companies like Apple, Google, Microsoft, currencies like USD, GBP, EUR and indices like FTSE-100 and Dow Jones.
At the Money
“At the money” is a key term in any binary options glossary. This is a term which describes a situation in which your contract is neither in nor out of the money. In this scenario, the asset’s price at expiry is the same as it was at the strike. When you’re at the money, you’ll keep your initial investment but won’t receive any payout for the contract. However, this isn’t always the case. Some brokers may offer reduced profit or other sorts of benefits when you’re at the money.
In the Money
In binary options trading, “in the money” translates to making a profit. There’re two cases in which you can be in the money:
- When you’ve bought a call option and the asset’s strike price is below the current price.
- When you’ve selected a put option and the asset’s strike price is above the current price.
Out of the Money
The opposite of being in the money. This term refers to a situation in which your option has no gain. You don’t make any profit and you lose the initial investment. Again, there’re two possible outcomes that lead to being out of the money:
- If you buy a call option and the asset’s price expires below the target price.
- If you choose a put option and the asset’s price expires above the target price.
Traders buy call options if they believe that an asset’s price will increase by the time of expiry. As long as your prediction is correct and the strike price increases, you’ll be in the money. This means that you’ll earn a profit based on the bidding percentage set prior to the contract.
You should choose put options if you predict that an asset’s value will decrease by the time expiry. If your assessment is correct and the strike price decreases, you’ll be in the money. On the other hand, if the price is above the designated threshold, you’ll be out of the money.
Range options are one of the most common binary options available for trading. They come with a pre-set upper and lower price boundaries. When you trade such options, you need to predict whether the underlying asset’s price will stay in of that range or go out of it at expiry.
Touch options are another essential term in our binary options glossary. They give you a payout once the value of an asset goes beyond a predetermined barrier. With touch options, traders can set the position of the barrier, expiry time and possible payout once the threshold is reached.
This is the most recent price of an asset listed in an investment portfolio. The current price is also the market value at which commodities are currently being traded in the market.
The strike price is one of the most important factors in digital options trading as it determines whether you’ll be in out of the money. Generally, the strike price represents index and stock options with fixed expiry price. For call options the strike price is the one at which you buy a contract. For put options the strike price is the one at which you sell a contract.
The funds investors transfer to brokers, for the purpose of trading. A deposit is identical to the money you transfer into a checking or bank’s savings account. Most binary options brokers allow for deposits in the range from $200 to $50,000.
Deposit withdrawal is the process of removing funds from an account. In digital options trading, withdrawals usually take between 2 and 5 business days. Keep in mind that some brokers may have custom rules about deposit withdrawals which limit the amount you can withdrawal for a specific period of time.
Another important phrase in our binary options glossary is derivative. This’s basically a contract between two or more parties. Its price is dependent on the fluctuations in underlying assets like currencies, indices, commodities, bonds and stocks. In binary options trading, derivatives are used as instruments for speculating how an asset’s value will shift during a contract. Some traders use them as tools to hedge risk as well.
The expiration time is a synonym of a deadline. Once a contract has reached its expiration time, it’s no longer valid. Remember that the expiration time is different from the last time during which you can trade an option. Also, keep in mind that different binary options come with different expiration times – 30 seconds, 1 minute, 1 hour, 1 day or 1 month.
Fundamental analysis is a tool for evaluating related financial, economic, qualitative and quantitative aspects of an asset, in order to measure how they can affect its performance on the market. This comprehensive instrument allows traders to predict whether an asset’s price will rise or fall, enabling them to make safe, secure and profitable trades.
Technical analysis is the opposite of fundamental analysis. It involves studying an asset’s price movements based on supply and demand in the market. This technique essentially tries to understand how an asset’s value is affected by the emotions in the market. Technical analysis offers copious benefits to the traders who can utilize its full potential.