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Published On: Fri, Dec 14th, 2012

Binary Options Glossary

To someone first venturing into the world of binary options trading, the sheer number of unfamiliar words and terms might sometimes be bewildering. Below are a few of the most common terms new traders often have problems with.

Asset – The underlying instrument on which the trade is based, e.g. a currency, a stock or a
commodity.

At the Money. This describes an option where the current price of the underlying asset
equals the option’s strike price.

Broker. The company providing the trading platform needed to trade binary options.
Traditionally a broker is only an intermediary between the so-called market maker and the
client, but with Binary Options the broker is usually also the market maker, i.e they actually
issue the Binary Options.

Call Option. A kind of binary option that pays out if the price of the underlying asset
increases to above the option’s strike price.

Charting. The plotting of an asset or an option’s price at regular time intervals, e.g. hourly,
daily or weekly.

Commodities. Basic consumables that are either mined, e.g. gold, or grown, e.g. rice.

Currency Pair. A foreign exchange rate in terms of which the value of one currency is
expressed in terms of another currency. An example is the Euro/USD exchange rate.

EMA/Exponential Moving Average. A modified moving average where more weight is given
to the latest prices.

Expiration. The time at which the option expires.

In the Money. This describes an option where the price of the underlying is greater than the
strike price of the option, in the case of call options and below the price of the option in the
case of put options.

Index or Indices. The weighted average of a basket of share prices, e.g. the biggest 500
companies in a country. The S&P 500 is such an index.

Out of the Money. This is the opposite of an In the Money binary option. In this case the
price of the underlying asset is beneath the strike price of the option in the case of call options
or above the price of the option in the case of put options.

Put Options. A type of binary option that pays out when the price of the underlying asset
falls beneath the strike price of the option at expiration.

Range or Boundary Binary Option. This type of binary option pays out if the trader can
correctly predict whether the value of the underlying asset will fall within a certain range at
expiration or not.

Refund or Rebate. This describes the practise whereby the broker/market maker refunds the
trader a certain percentage of the initial premium even when he/she is wrong and the binary
options therefore end Out of the Money.

Strike Price. The price that the underlying asset must reach before or at expiration for the
option to expire In the Money.

Technical Analysis. The statistical analysis of past price movements in an attempt to predict
future price movements.

Security. See Asset.

Touch/No Touch Binary Option. A type of binary option that pays out if the price of the
underlying touches or does not touch a particular price level before expiration.

Trading Minimum. The smallest amount at which binary options can be traded at a particular
broker.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

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