A glossary is a dictionary which contains terms that are relevant to a specific topic, listed here are words you will need to know in order to start trading binary options and understand what others are talking about. Below is a list of words and their explanations that are relevant while trading binary options online.
Ask – In financial markets anything available for trading has an ask price, this price refers to the price at which an investor can buy an asset. In binary options the ask price is part of a formula to calculate the expiry level of an asset.
Asset – A currency pair, commodity, stock, or index
Asset-or-Nothing – This is an option that pays the value of the underlying asset or security upon expiry.
At-the-money – A financial term, which describes a trade where the current price of the underlying asset is the same as the price when the option was purchased. A trade can be refereed to as At the money or ATM if it expires at this price.
Bid – In financial markets everything available for trading has a bid price, this price refers to the price at which an investor can sell an asset. In binary options the bid price is part of a formula to calculate the expiry level of an asset.
Binary Options – These are trading options that pay out a fixed amount if the underlying asset reaches the trader’s selected direction at expiry time. These options are binary in nature as they can only go in two directions, up or down.
Cash-or-Nothing – this option pays a fixed amount of cash if the option expires in-the money and it is the method by which most only brokers work today.
Call Option – Call options give investors the opportunity to profit from an upward trend on any given asset. By placing a call option and having this option expire above the stake price the trader will profit. (profit rates vary according to the broker you are trading with)
Commodities – This is a category of asset which is available for trading in binary options. Commodities trading is the trading of raw materials from a wide variety of sectors including as metals, food and energy .
Execution Rate – This is the rate, or price, at which a trader has entered a specific trade. See: Strike Price.
Exotic Pair – Currency pairs that are less commonly traded. These pairs typically have higher spreads in spot forex and are harder to profit from because of it.
Expiry Rate – The is the rate, or price, at which a trade has ended. Depending on this price a trade will be In The Money, Out of The Money, or At The Money. Most brokers use the following formula. (ask + bid) / 2 = expiry rate. This is the same as Expiry Price.
Expiry Time – The specific time and date when a Binary Option position or trade ends. These times are predetermined and can range anywhere between 1 minute to 1 month depending on the asset you are trading and the broker you are trading with.
In-The-Money – Also refered to as ITM, is a financial term, which defines a trade that has performed well and gained a net profit for the trader.
- Example – A trader places a Call option – following the trader deciding his desired execution rate and placing a trade the price of the chosen asset has risen and expired above the execution rate.
Investment – The amount one invested in on a specific trade. The true definition is: “A thing that is worth buying because it may be profitable or useful in the future. ”
Indices – The plural of Index an an asset that represents a large group of stocks on a specific exchange. Some examples are Indices are the CAC and DAX which are both traded on the German stock exchange.
Mid Market – Is the average of the bid and ask prices, this price represent the true market price of an asset in binary options with no spreads.
One-Touch Option – A binary option which offers investors a fixed profit if the trading price reaches or surpasses a predetermined level. It is sufficient that the option touches this predetermined level just once before expiring.
Out-Of-The-Money – A financial term, which describes a trade where the current price of the underlying asset is less than the price when the option was purchased. A trade can be refereed to as Out of The Money or OTM if it expires at this price.
Payout – The amount a trader receives at the expiry time of an investment, this depends on the performance of the option.
Put Option – Put options give investors the opportunity to profit from a downward trend on any given asset. By placing a call option and having this option expire below the execution rate the trader will profit.
Rate – The price of an asset at any given time.
- Example: ” What is the current market rate of Oil?”
Stocks – Everyone knows what stocks are, but just to clarity. Stocks are a representation of the value of a specific company.
- Example – “Google stock went up this week.”
Strike Price – This is the price at which a trade is entered. This term is interchangeable with “Execution Rate”.
Trading Hours – Each asset has it’s own hours that it is available for trading, trading days as well as holidays. The broker you trade with will be able to define these hours for you.