Glossary Of Terms

Binary Options Glossary

There are number of unique terms in Binary Options. The following list provides a glossary of those that you will come across when you start trading.

Binary Options GlossaryAmerican Option

This is an option contract that can be exercised at point during the options life. They do not need to reach maturity n order to be exercised.

Asset

The underlying resource or instrument that a binary options contact is used to trade. This is usually an Index, currency pair, stock or commodity.

At-the-money

When the price of the underlying asset is exactly the same as when the option contract was purchased.

Boundary

A type of contract where the trader can profit from predicting if the price on an underlying asset will ‘stay in’ or ‘move outside’ an upper and lower level price boundary.

Call

Used when the trader expects the price of the asset to end higher than the price at which the contract was purchased.

Binary/Digital Options

The name that is given to options that offer a pre-set fixed payout or fixed loss at expiry, dependent upon the expiry rate relative to the entry price.

European Option

This is an option contract that can only be exercised once it reaches the end of it’s life. Most binary options charts focus on European style options.

Expiry rate

The price of the underlying asset when the contract reaches its expiry time. Whether the asset finishes in-the-money, out-of-the-money or at-the-money is determined by the rate at expiry.

Expiry Time

The time and date when a binary options contract reaches the end of its preset life and expires. At this point the contract will expire in-the-money, out-of-the-money or at-the-money.

Fundamental analysis

A method of financial analysis which relies upon the use economic, financial and geopolitical factors to determine the future price of an asset. This school of analysis uses information such as economic data, central bank decisions and political events to determine the future pricing of an asset.

In-the-money

When the option contract is profitable. For example, a Call option contract would be ‘in the money’ if the current price of the underlying asset was greater than the price at the time of purchase.

Over-the-counter (OTC)

Describes the direct transactions made between two parties. This is opposed trading on currency markets or on Stock exchanges where deals are ‘brokered’ and managed by a third party. Binary options are primarily sold as over-the-counter products online.

Out-of-the-money

When the option contract is unprofitable. For example, a Call option contract would be ‘out of the money’ if the current price of the underlying asset was lower than the price at the time of purchase.

Payout

The profit that is realised when a binary options contract expires ‘in the money.’ The payout is made instantaneously by the broker

Put

Used when the trader expects the price of the asset to end lower than the price at which the contract was purchased.

Rate

The current real-time price of an asset.

Technical Analysis

A method of financial analysis which relies upon the use of historical financial data to determine the future price of an asset. This school of analysis uses information such as past price action, technical indicators and chart patterns to determine the future pricing of an asset.

Strike Price

The price which the option must reach to be considered in-the-money. Also known as the exercise price.

Touch

A type of contract where the trader can profit from predicting if the price on an underlying asset will ‘Touch’ or ‘Not Touch’ a single specified price boundary.