Glossary Of Terms
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.
American 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 are 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.
