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I have put it all together for you in one article – a binary options glossary. Use it when you don’t understand a term or as a guide if you are just getting started with options.
An asset is a stock, commodity, currency, or index. This value is used in trading operations as a derivative instrument for assets, the price of which was calculated based on the value of various assets. It is possible to exchange underlying assets for money, which means that it is not necessary to exchange them for physical assets. The underlying asset is priced based on the prices of physical assets. In this case, exchange or ownership is not required.
A zero profit option is an option with zero intrinsic value.
A call option ( call option ) is an option that grants its holder the right to receive a fixed profit when the price of the underlying asset at the expiration date becomes higher than the level of its price at which it was purchased.
The strike price of an option is the price of the underlying asset at the time of its expiration, according to real-time data provided by the liquidity provider. The strike price determines whether a given option was exercised in the money or out of the money.
The exercise time of an option is the designated time and date of expiration of the binary option. The moment when the position is closed. It is here that the trader understands whether a binary option transaction was successful. This moment is very significant and decides the case in the end of the binary option. The selection of the expiration date may vary for the trader. The main thing for him is to understand the time frame in which he is going to work when buying an option. When selling and buying binary options, expiration is the main guarantee of profitable trading.
An option in the money is when the trader’s prediction about the direction of trade at the expiration of the option turned out to be correct. In-The-Money (ITM) – Indicates that the transaction was successful and profitable for the trader. As an example, if you choose the Above option, the current price of the underlying asset will exceed the original price at the time of the option purchase.
Investment is the amount invested in a specific option.
(OTM) option is when a trader’s prediction of the direction to trade at the expiration of the option is wrong. Indicates that as a result of the transaction, it was unsuccessful and was unprofitable for the trader. An example can be given – when choosing the Call option, the current price of the underlying asset will ultimately be lower than the original price at the time of purchasing the option.
Payouts are the amount of investment received by the trader at the expiration of the investment.
A put option (put option) is an option that grants its holder the right to receive a fixed profit when the price of the underlying asset after expiration falls below the level of its price at which it was purchased.
The rate is the price of an asset. Indicates the current market price of the underlying asset. Once a binary option has been purchased, its purchase price is converted to the initial option price.
A straddle is the opening of a call or put option on a specific asset in relation to which the call price is lower than the original put price. This futures arbitrage transaction consists of the simultaneous purchase and sale of a financial asset to profit from changes in the ratio between prices, as a result of which the risk of the transaction is reduced.
Digital Option, aka Binary – If a trader buys such an option, then he has the opportunity to receive a certain fixed payment. This works in the event that the price of the asset (types of assets), which is taken as the basis of the option, after the expiry of the option expiration date reaches the direction chosen by the trader.
60 second option – The expiration date of such an option is 60 seconds.
American Option, it is simply Option – This type of option can be executed absolutely at any time during its validity period. If you invest in such an option, then there is no need to wait – and this is how it differs from digital European options.
European Option – This option can be exercised only at the moment when the moment of its exercise has come. Most of the binary options can be attributed to this type.
Demand price – This is the price at which the various assets in the financial markets, investors can buy. There is a formula used to calculate the value of an asset, and the bid price influences this formula.
At-The-Money (abbreviated ATM) – In this situation, the underlying asset has the same present value at which the option was purchased.
Above – With this option, the trader predicts that after expiration, the asset value will exceed the strike price of the option.
Below – With this option, the trader makes a forecast that after the expiration of the term, the value of the asset will not exceed the strike price of the option.
Option Initial Price – The current market price of the underlying asset, which is determined as soon as the option has been purchased.
Fundamental Analysis – The principle of security analysis using financial, economic and other necessary indicators. It is necessary in order to assess the entire situation and all the points that may have an impact on safety. These factors include the general economic situation, industry, and other special indicators, on which the value of assets may ultimately depend.
Technical analysis – This is a way of providing investment safety thanks to the analysis of statistical data that are related to the process of changes in asset prices and the volumes of signed contractual obligations for each asset for a certain past period. In order to determine the likelihood of asset behavior in the markets for the future, graphs and diagrams are also used.
Indices are nothing more than stocks.
Stock Index – There is a summation of certain groups of stocks in order to calculate a stock index – for example, for stocks of companies in the industrial sector, there is the Dow Jones index.
One Touch – With the One Touch function, you can determine whether the market price of an asset will come to a predetermined value before the option expiration date.
– If you choose the Put option, you made a forecast of a downtrend, and the value of the asset should go down and reach the line marked in red on the chart (about 30 points).
– If you choose the Call option, you have made a forecast of an upward trend, and the value of the asset should rise and reach the line indicated on the chart in green (about 30 points).
Option – A financial derivative. It looks like a contract that one party to the transaction sells to the second. This agreement gives its owner the opportunity to buy “above” or sell “below” some financial assets, for example, securities, at the price of execution for a certain period or on a fixed date.
Degree of protection – This is the name of the mandatory return to the trader of a certain amount of the initial bet. Let’s imagine that the deal to buy a binary option came out unsuccessful for the trader and ended not in his favor. In this case, he will receive back a certain percentage of the amount of money from the original bet. The indicator of the degree of protection should be set before starting work – the transaction itself, just like the payment in case the transaction is completed successfully. This amount is also fixed initially. The degree of protection is a kind of consolation prize if the trade was unprofitable for the trader.
Range – The Range function gives the lower and upper boundaries of the target price – they form the so-called range boundaries.
– If the choice is in favor of “below”, it means that a downtrend is predicted in the specified range and the asset price should eventually fall to a level lower than the strike price of the option, and not fall below the lower limit of the specified range.
– If the choice is in favor of “higher” – it means that an upward trend is predicted in the specified range and the asset price should eventually remain higher than the strike price of the option, but not cross the upper border of the range.
Profit percentage – The profit percentage is equal to the value of the contract if the binary option transaction is completed successfully. This percentage is determined at the very beginning of the transaction. It will not be changed and does not depend on the relative success of the transaction. It does not matter how much higher the asset value at the end of the option expiration date – at least by 10 points, at least by 50. This situation will not affect the percentage of cash payments following the transaction.
Return Rate – A certain fixed percentage of the initial investment.
Trading hours – Each asset has certain hours at which it is realistic to conduct trading, and / or trading days when an investment can be made in this asset.
End of Day – End for Trading
Trend, aka Trend – This indicator is of great importance in assessing the successful investment of money in binary options. It means the change in asset prices over a certain period of time. The trend is the more clear, the longer the price moves in one direction. Using the trend and understanding it, investors have the opportunity to make informed decisions based on the likely price movement in the future.
Turnover – Shows the number of contracts or shares with which transactions take place over a certain period of time.