Binary Options Terminology

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Terminology

You will learn about the following concepts

  • Basic binary options terms
  • What is asset and current rate
  • Call and put options
  • In and out of the money

In this article you will find some of the most frequently used terms and we will provide you with their explanation. Understanding them is necessary because you will be using them on a daily basis during your trading career.

Naturally, if you start trading without having the necessary core knowledge, you are very likely to fail and wipe your initial capital. The main terms that we are about to mention below are: asset, binary option, broker, current rate, expiration rate, range option, in the money, high or call option, low or put option, subjacent asset, out of the money, rate of profit.

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Asset – this is the underlying stock, commodity, currency pair or index, on which the binary option is based.

Binary option –this term contains excessive information that cant be explained in just a few words. Basically, the binary option can be explained as way of online investment for a fixed return with an expiration period, which is also fixed. It has gained huge popularity in the last couple of years mainly because its simplicity and appeal toward the general public.

Broker – brokerage companies allow users to trade binary options on the markets. It would be impossible to make a deal, if there werent any brokers.

Current rate – it represents the current price of the asset.

Range option – the term is also referred to as ‘’zone option’’ and it is the limit that companies usually specify for different zones, for example.

Expiration time – the date and time when the option is about to expire.

High or Call Option – this is the most used type of binary option. It speculates that the assets price will rise.

Low or Put Option – the opposite of a High of Call option. It is purchased when the trader thinks that the assets price will decrease.

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In-the-money – this term is used in order to describe the situation when you have predicted the movement of the asset price correctly and the binary option is profitable.

Out-of-the-money – this term describes the situation when you have wrongfully predicted the assets price movement, rendering the binary option a loser.

Rate of profit – this term represents the percentage of money that the trader gets as return after a trade expires in the money.

Fundamental analysis – this is one of the topics that will be extensively covered in the next parts of the tutorial, but for now all you need to know is that the fundamental analysis represents a way to evaluate a stock, currency or commoditys fluctuations based on such political, geopolitical, demographic, macroeconomic factors and others.

Technical analysis – another topic that will be thoroughly covered later. It is an analysis methodology that uses primarily chart patterns to help you predict the direction an asset might move. Generally it ignores fundamental factors and is based mainly on historical price data and volume.

Binary Options The Basic Terminology 2020 April Updated

Every financial market has its accompanying lingo. Words and phrases you will only see used in the context of that specific market. In Forex trading, there are pips and spreads and in Binary Options, there is “In the money” and “Out the money”.

The following are some explanations about the primary terminology used to describe the Binary Options market.

Binary Options: The basic explanation is that like the meaning of the word “Binary”, with Binary Options, there are only two possible outcomes. You were either correct in your prediction and you therefore make profit, or you were incorrect, in which case you lose your money. How much do you make or lose from Binary Options? Well, that depends on your initial investment, but there is no issue of experiencing huge unexpected losses or making astronomical profits.
Call Option: When a trader predicts that the instrument will increase in price. Even if the price then increases by a tenth of a cent, you profit from such a Binary Option.
Put Option: When a trader predicts that the instrument will decrease in price. Even if the instrument then decreases by a tenth of a cent, you profit from such a Binary Option.
In the Money: If you “win” the trade, it is referred to as “In the Money”. For example, if you placed a Call Option, and the price increased, you are then “In the Money” in that Binary Option. On the flip side, if you placed a Put Option and the price decreased, you are also “In the Money”.
Out the Money: If you “lose” the trade, it is referred to as “Out the Money”. For example, if you placed a Call Option, that the price decreased, you are then “Out the Money” in Binary Options. On the flip side, if you placed a “Put Option” and the price increased, you are also “Out the Money”.
At the Money: If the price of the instrument is identical at the expiry date to the amount that it was at the trading time. In this scenario, you were neither right nor wrong, in which case, your investment is returned to you in full with Binary Options.
Expiry Date: The time or date at which the Binary Options expire and the price is examined to see if you are In the Money or Out the Money.

In conclusion, at first glance, some of the Binary Options lingo can seem confusing and overwhelming, but after a little reading, it all clears up and becomes understandable.

Binary Options Terminology

It’s easy to look at the title and go “Oh no, they’re talking about computers!” But no, this is not about computers, it’s talking about trade, simple business. So just relax keep going.

In order to properly define the terminology involved in Binary options, as ever it is necessary to have a rudimentary understanding of binary options as a concept.

As the name suggests, it is basically a trade of only two possible outcomes: all or nothing, 100 or 0.

An investor assesses a particular stock as either going up or down. This happens within a certain period of time and depending on the outcome. He then receives either a positive or negative return on their investments.

An accurate prediction would yield a profit on the investment and an inaccurate prediction, a loss.

In the event of the market staying exactly the same throughout the predicted time period, the investment would be returned unchanged.

Binary Options Vocabulary

Oonce a concept is grasped, the subsequent terminology is simple and easy to remember.

Call Option

This option is taken when a trader makes a prediction that the market for a particular item will increase its value within the given time period.

If the prediction turns out to be accurate and the value of the market rises even on a minute scale, the trader will still profit from the investment.

For example: will fuel prices escalate to over $5 per liter by 12:45 p.m.? If your guess is that they will, you then invest in a call option and if by 12:45 p.m. your prediction is correct, you profit from the investment.

Put Options

When the trader predicts that the item in question will decrease in value within a given time period.

If proven accurate and value for the item drops even slightly, the trader will still profit from the investment. For example: will fuel prices escalate to over $5 per liter by 12:45 p.m.?

If your guess is that they will not, you then invest in a put option and if by 12:45 p.m. your prediction is correct, you profit from the investment.

In The Money

If the investor places either a call option or put option on a certain stock and their prediction turns out to be accurate, they are referred to as being ‘in the money’ as their prediction has managed to return a profit on their investment.

Out the Money

If the investor places either a call option or put option on a certain stock and their prediction turns out to be inaccurate, they are referred to as being ‘out the money’. Since their prediction being incorrect has resulted in losing the investment.

At the Money

Regardless of the trader placing a call option or put option, if price of a stock remains identical at the end of the given time limit as it was when the call was made, the trader would be ‘at the money’. The same amount that had been invested is returned in full.

Expiry Date

This refers to the end of the time period allotted for the binary option. This is done by the investor to verify if their prediction has turned out to be accurate or inaccurate.

It is determined, at this time, whether the trader either:

  • in the money
  • out the money
  • at the money

One might wonder what the result of an investment might be if a trader made a call that a particular stock would remain at exactly the same price within the given time limit.

However, considering the highly unpredictable fluctuation of prices, it would be an improbable notion to bet your money on it. A term has not been invented for that particular call, although most businessman may just call it flat out stupid.

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