Binary Options Terminology

May 27, 2015 by in category Articles tagged as , with 0 and 0
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Coming across phrases and terminology that you are unfamiliar with as you start to trade binary options is common. This is why I found it important for you to learn what some of these jargons mean and when you might come across them. In this post, we have come up with meanings of some of the commonly used binary options terminology.

  • Binary options: The basic explanation for this word is picked from the meaning of the word binary which means that there are two possible outcomes. This means that the binary options market has only two outcomes; whether you were correct on your predictions or not. In binary options you either call or put.
  • Call Option: This is a type of binary option that becomes profitable if the unit price of the asset in question goes above the strike price at the time of expiration.
  • Put Option: This is the kind of option that is profitable only when the unit price of a traded instrument goes below the strike price at the expiration period of the set time.
  • Expiration time: Every binary option has an expiry period that you determine before making a call or put option. This can be 60 seconds, one minute, one hour, the time is determined by the broker you are using.
  • Strike price: This is the price of the asset when you execute a binary option. This is the price at the time you call or put.
  • Broker: These are the people hosting the trading platforms from where you will be executing the trades. You have to register an account with a broker before you can start trading.
  • Demo account: trading account with virtual money, which is mostly used by beginners to familiarise themselves with trading platform and develop their trading strategy. Trading on a demo account does not differ from trading on a real account, charts and quotes are updated in real time as well.
  • Asset: this is an instrument that is traded in binary options. These instruments in binary options may include; currency pairs, commodities, stocks or indices.
  • At the Money/In the money: This simply means that you won the trade. This is when you successfully put option or call option.
  • Out the Money: This means that your trade lost. This is when you make a put option but the price goes up or made a call option and the prices went down.
  • Flat: word is used to describe uncertainty on the market, when there is no clear trend to a reduction or increase in asset price.
  • Trading minimum: this is the least amount you need to execute a binary option. You should note that this amount depends on the broker you’re using.
  • Trade session: it’s the time when trading markets are active, which are located in different geographical areas. Main trading sessions: Asian, European and American.
  • Charting: this is often used to assist in technical analysis and involves drawing an option’s price at successive points.
  • Currency pairs: these are determined when value of a currency is matched to another. A commonly used currency pair would be the Euro and the US dollar (EUR/USD).
  • Commodities: these are the basic goods and are mined or grown, they include; gold, sugar, oil or coffee.
  • EMA’s (Estimated Moving Averages): These are signals that will show the moving averages of a given assets price.
  • Fundamental Analysis: This is the kind of analysis that makes use of macroeconomics and microeconomic information to show future prices of assets. This might be and not limited to unemployment rates, inflation, supply and demand or interest rates.
  • Volatility: characteristic of the market, indicating a measure of price movement over some fixed time. Increased market volatility is often observed during the release of data on important economic indicators.
  • Rebate or refund: This is another binary options jargon and is used in most cases to show the percentage of the amount invested that will be issued back after a losing trade and most brokers offer it as a bonus to their traders.
  • Indices/Index: An index is made up of multiple stocks. The prices of indices show the individual prices of given securities; for instance, S & P 500 or the Dow Jones Industrial Average (DJIA).
  • Signals: in binary options this term is usually referred to indicators or other trader suggestions, which should result in winning outcome. Signals do help to choose the movement direction of asset price, but in long term they are not profitable.
This Binary Options Terminology page was last updated in January 2016.
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