Basic terms in binary options Reading Terms associated with binary options trading explained.
Expiration Rate in Binary Options 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.
Binary Options, as with many forms of trading, has many unique words and phrases that may not be familiar to investors new to this form of investment. Here we have tried to collate as many of those binary option terms as possible, and listed them in our glossary alphabetically. If you are looking for a particular term and it is not covered, please let us know via our contact us page and we will gladly look to add it.
Table of Contents
American-Style Option An option contract that may be exercised at any time between the date of purchase and the expiration date. Arbitrage The simultaneous purchase and sale of financial instruments in order to benefit from price discrepancies. Ask Price This is the price at which a potential seller is willing to sell.
Glossary Know About Common Binary Option Terms through Binary Options Glossary When you are attempting to carry out the binary options trading, you will come across many terms and phrases that you have not heard in your life before. It is very important for you to know some of the common terms and phrases used in binary options trading before stepping into the binary options trading league.
Bear Spread An option strategy that makes its maximum profit when the underlying stock declines and has its maximum risk if the stock rises in price. Beta A figure that indicates the historical propensity of a stock price to move with the stock market as a whole. Bid Price The price at which a potential buyer is willing to buy from you. Binary Options Options that either pay you a fixed return when it ends up in the money by expiration or nothing at all.
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Break Even Point- the price at which a particular strategy neither makes nor loses money. Bullish Options Strategies Different ways to use options in order profit from an upwards move in the underlying market.
Buy To Open To establish an options position by going long. Call Options Option which gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.
Terms associated with binary options trading explained.
Cash Settlement Options which, when exercised, delivers the profit in cash instead of an underlying asset. Close Period at the end of a trading day where final prices for the day are calculated. Contract Size The amount of underlying asset covered by the option contract.
Contract Neutral Hedging A static hedging technique involving buying 1 put option or selling 1. Day Trader Traders who open and close option positions or multiple option positions all within the same trading day. Call options have positive deltas, while put options have negative deltas. Delta Neutral When positive delta options and negative delta options offset each other to produce a position which neither gains nor decreases in value as the underlying stock basic terms in binary options slightly up or down.
Derivatives A financial instrument whose value is derived in part from the value and characteristics of another financial instrument.
Examples of derivatives are options and futures. Exercise To invoke the right granted under the terms of a listed options contract. The holder is the one who exercises.
Binary Options Terminology
Call holders exercise to buy the underlying security, while put holders exercise to sell the underlying security. Exercise Price The price at which the option holder may buy or sell the underlying security, as defined in the terms of his option contract.
Expiration Date The day on which an option contract becomes void.
Binary options depend on the outcome of a "yes or no" proposition, hence the name "binary. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price based on the trade taken for the trader to make a profit.
Expiration Time The time at which an option expires. Expire Worthless When out of the money options lose all their value and expire. Financial Instrument A physical or electronic document that has intrinsic monetary value or transfers value.
- So we have put together a comprehensive list of the commonly used terms along with lesser known references that you might find useful.
- Binary Options: The Basic Terminology
- Binary Options Glossary As the ease and simplicity of binary options trading become well known, it is attracting more traders.
- Words and phrases you will only see used in the context of that specific market.
- Forex for beginners Binary Options Terminology A new binary trader and any person with an eye for binary trading should understand that terminology is a key and essential element of binary options.
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For example, cash, shares, futures, options and precious metals are financial instruments. Greeks A set of mathematical criteria involved in the calculation of stock option prices. Hedging The process of placing a trade in order to reduce risk on other trades or assets. Index Futures A futures contract on an index in the futures market. Inflation The rate at which the price of goods and services rises within an economy.
Initial Margin Requirement This is the amount needed as available trading resources in your account in order to open a position. In-the-money Option A put option that has a strike price higher than the underlying future price, or a call basic terms in binary options with a strike price lower than the underlying futures price.
Intrinsic Value The value of an option if it were to expire immediately with the underlying stock at its current price. Last Day of Trading The last day on which you can open or close a trade in a particular market. The last trading day is not the same as the expiry date.
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Leading Indicators Economic indicators that change before the economy changes. Leverage A technique to multiply gains and losses. Most often used when buying more of an asset with borrowed funds.