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Binary options Glossary of Terms



When you begin reading about binary option trading you are likely to encounter a number of unfamiliar words and phrases. In this glossary we cover the basic nuts and bolts vocabulary and some of the more exotic phrases. This terminology will help you to get to grips with the processes, methods and techniques that you can use while trading   

 

 

 

At the Money – When the value of the asset at the expiration of the trade is equal to the strike price (see below for a definition of strike price) we say it is at the Money. If your trade were to finish at the money you would not win or lose anything. In other words, it’s a draw.

 

Broker – A broker hosts a trade between parties. In the case of online binary option trading the brokers are the people who own the website and manage the transactions between the stock market and traders. The broker take commission each trade so read the terms and conditions carefully when you sign up to a broker website to find out how much.

 

Call option – When you wager that a commodity price will rise before the expiration time of the trade you have executed a call option.

 

Charting – Used to identify patterns in the fluctuations of an asset price, this technique is where a prospective trader creates a chart to plot the value of an asset at successive points in time.

 

Commodities – Raw materials, such as gold, coffee or oil. These are a type of underlying asset that can be traded as binary options.

 

Currency Pair – A pair of currencies who share an exchange rate. Binary options can be traded on the premise that the value of one currency might rise or fall against another’s.

 

EMA’s / Estimated Moving Averages – These figures can inform you about how an assets value might change in the future. They are generated from the average price movement of the asset over a specific time period in the past.

 

Expiry Time or Expiration - When you trade on a binary option you select how long the trade will last. The expiry time is when the trade finishes.

 

Fibonacci Retracements - These figures can inform you about how an assets value might change in the future. Otherwise known as fibs or fib lines, they are measurements of the asset value at specific points in time. The measurements are made in accordance with the Fibonacci number sequence, hence the name.

 

Fundamental Analysis – This is another method of analysis that is used to forecast asset price changes. The predictions are made based on macro economic statistics, such as unemployment rates, inflation and interest rates, and micro economic statistics – supply and demand.

 

In the money - When your prediction about the asset price movement is proving to be correct we say you are in the money.

 

Index or Indices – The index is a number that is calculated to represent the value of a group of assets together. The number is expressed as a factor of fraction of 100. Binary options can actually be traded on these indices.

 

Market Price – The current value of the underlying asset is known as its market price. For example, the current market price of Brent crude oil is $80 per barrel.

 

Out Of The Money – When your prediction about the asset price movement is proving to be incorrect, we say you are out of the money

 

Platform – This is the environment that acts as the interface for your trade. If you trade binary options online the broker uses a website as a platform to host the trade.

 

Put Option – When you wager that a commodity price will fall before the expiration time of the trade you have executed a call option.

 

Range Option – When you wager that a commodity price will finish within a particular price range at the expiration point you have executed a range option. This type of option is also known as a boundary option.

 

Rebate or Refund –This is a sum of money that a broker agrees to give to a trader should they lose a trade. Make sure to check if there is a rebate percentage offered by the broker, when you sign up to their service.

 

Strike Price – The value of the underlying asset at the moment when you make your trade is known as the strike price. 

 

Technical Analysis – The figures taken from a technical analysis can inform you about how an assets value might change in the future. Technical analysers chart statistic changes, such as trade volume and price, to generate an asset price forecast.

 

Touch / No Touch Binary Option – A type of binary option where the traders objective is to predict whether the unit price will touch a particular target price before the trade expires.

 

Trading Minimum – This is the minimum amount that you have to pay-in to execute a binary option. Each broker will have a different trading minimum, so shop around to find the rate that best suits your strategy.

 

Underlying Asset – The commodity, stock, currency or indices that is being traded, as a binary option is known as the underlying asset. Traders speculate on changes in its value.