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Binary Options Glossary Terms Definition

A

ASK
The Ask is the market price for buying an asset in the financial markets. The ask price refers to the price at which an investor can buy an asset in the financial markets. The ask price is a part of the formula which is used to calculate the expiry level of an asset.
ASSETS
The Asset or Instrument is the underlying index, stock, commodity, or currency on which each trade is based. Each asset is a unique tradable instrument. Some assets are traded on multiple exchanges in which case they are different and have different ticker symbols, e.g. Google is GOOG on NASDAQ and GGQ1 on Frankfurt Stock Exchange.
AT-THE-MONEY (ATM)
One of three terms used to describe an option’s current status in terms of its ability to generate profit. At-the-money refers to a situation in which the option’s target price is identical to the underlying asset’s price. If an option expires in this status, the investment amount will be returned. In other words it is a tie or a draw, there is no profit nor loss, you receive the stakes back.

B

BID
The bid is the price for selling an asset in financial market. In binary options, this is used in the calculation of expiry levels.
BINARY OPTIONS (DIGITIAL OPTIONS/FROS)
A type of option where the return is all or nothing. Also known as Digital Options or Fixed Return Options (FROs). The return is a fixed amount rather than a variable amount such as with spread betting or contracts for difference. For example, a typical binary option would ask if the underlying asset, such as Gold, would rise or fall in value and offer an 85% return for a correct prediction.
Boundary Instrument
A tool used in trading binary options whereby a trader must try to predict if the underlying asset will reach a value that is within or out of a specified range of values when the option expires.

C

CALL OPTION
A call option provides the investor with the opportunity to gain if the asset rally’s above the open rate of the call transaction. In the event that the expiry rate is the same as the open rate, the investor will be refunded the full investment amount.
Current Price
The price in near real time as reported. The term current price is often used to contrast real-time reporting from most free price information, which is often delayed by fifteen minutes or more.
COMMODITIES
Commodities are raw products that are traded on the markets. They include Crude Oil, precious metals such as Gold and Silver, and agricultural instruments, such as Coffee, Wheat, Sugar and Corn.

D

Draw
A Draw or At-The-Money trade is when the price of the asset at expiry is the same as the strike price so the trade expires At-The-Money. When this occurs your investment stakes are returned to you. In other words it is a tie or a draw, there is no profit nor loss, you receive the stakes back.

E

EXPIRY RATE
The expiry rate is the price of the underlying asset at the time the option expires. In above-below binary trading, whether the option finished in-the-money or out-of-the-money is based on the expiry price of the asset.
EXPIRY TIME
The expiry time is the exact time and date at which the trade closes and the option expires.
Exotic Options
Binary Options are a simplified version of exotic options, which were traded on exclusive markets by brokers for years before they were available to the public as binary options.
Early Closure
A feature that allows traders to exit an option prior to the decided expiration time for a reduced return.
EXECUTION RATE
The entry level of the underlying asset when the position is placed.

F

Futures
A class of indirect securities, made up of a contract to either buy or sell some sort of commodity at a time in the future. A strict futures contract requires that the holder buy or sell the commodity, while a futures option gives them the choice to do so.
Fundamental Analysis
One of the two major schools of analysis, used to examine macroeconomic data such as national economic health, central bank decisions, political events, or geologic events. At its core fundamental analysis believes that assets may be mispriced temporarily, but eventually will reach their correct price, and by examining macroeconomic events one can deduce what that eventual correct price will be.

H

High Option
An option on a High/Low instrument offering a fixed return of up to 91% return if the underlying asset expires at a higher level than the option target price.
High/Low Instrument
A binary options trading instrument in which a trader must predict if the underlying asset will reach a value that is above or below the strike price when the option expires.

I

Investment Amount
The amount of capital invested in a single binary option; the stake.
IN-THE-MONEY (ITM)
Being In-The-Money simply means that your trade has won. Where you correctly predict an assets price will be higher than the strike price at the time of expiry or correctly predict the assets price will be lower than the strike price at the time of expiry, you will be In-The-Money. When you win or are In-The-Money, you will receive your invested stakes back plus the profit so for example if the profit is 100% and you stake $100 in the trade, you will receive $195 for a total return to you of 200%.
INDICES
Indices are exchanges around the world, where stocks are traded, for example the American Dow Jones 30 and NASDAQ, the European FTSE 100, or the Asian NIKKEI.

M

MID MARKET
The average of the bid and ask, this price represent the real price of the market with no spreads between bid and ask. Binary options brokers use the mid-market prices for their expiry rates.
Market Price
The current value of an underlying asset.

N

No Touch Option
An option on a One Touch instrument typically offering a return up to 91% if the underlying asset does not reach the target price during the lifetime of the option. Note: Should a No Touch option reach the target price at any time during the lifetime of the option then the option automatically and immediately expires “Out of the money”.

O

ONE-TOUCH OPTION
An option which gives the investor a fixed payout once the price of the underlying asset reaches or surpasses a predetermined level. To be eligible for payout, it is sufficient that the option touches or surpasses the predetermined level just once at 17:00 GMT during the week throughout the options life cycle. If the predicted level is not reached or surpassed even once, the initial investment is lost.
The options will be sampled over a period of five days, Monday Friday, once a day in accordance with the Reuters 17:00 Sample Rate. The promised payout will be transferred to the clients account on the expiration date of the option (Friday 20:00 pm), even if the terms of the options have been realized before the end of the period.
Option
In binary options the investor can trade any financial product, without having to purchase the actual asset. When trading a commodity such as Gold, or a stock, like Apple, the trader is not physically buying and selling the product. They are trading a virtual stand-in called an option (also known as an underlying asset). An option is therefore a virtual asset that represents the real-time movements of the actual asset.
Over-the-Counter (OTC)
Products which are sold directly between two parties; distinguished from exchange trading, which occurs via exchanges and brokers set up for the purpose of managing these transactions. Binary options are available in a limited number of exchanges, but are primarily sold as over-the-counter products online.
OUT-OF-THE-MONEY (OTM)
Being Out-Of-The-Money simply means that your trade has lost. A trade will lose where you incorrectly predict an assets price will be higher than the strike price at the expiry time, or where you incorrectly predict the assets price will be lower than the strike price at the expiry time, you will be Out-Of-The-Money meaning that your trade will have lost and your loss is limited to the invested stakes only.

P

Payout
The profit realized when a contract expires in-the-money. In binary options the payout is generally between 75% and 91%.
PUT OPTION
A put option allows the trader to benefit from a prediction that by the time the trade expires, the value of the asset will have fallen below the opening price. In the event that the expiry price is the same as the open price, the investor will be refunded with the full investment amount.

R

Return/ Return on Investment (ROI)
The amount given back to the investor once an option expires “in-the-money”. For example, if investing €1,000 in an option that offers an 91% return, the trader will receive €1,910 in returns (€910 in profit) if the option expires “in-the-money”.

S

STOCKS
Stocks confirm that the holder of stocks has purchased a percent of a company; as such it is entitled to a profit sharing relative to the percent he has in the company. In case of a bankruptcy, the stock holders are the last to receive any of the companys assets.
Strike Price
The Strike Price, also known as the Exercise Price, is the price of the underlying Asset or Instrument at the time the trade is placed. The strike price forms the basis of the trade contract. At the trades Expiry Time, the assets Expiry Price gets compared to the strike price to determine whether the trade contract finished either In-The-Money so the trader wins and is entitled to the payout for the winning trade, or Out-Of-The-Money so the trader loses and is entitled to no payout. For example, when using the “one touch” instrument and selecting “touch”, the option will end “in-the-money” if the underlying asset touches the target price.
Seed Capital
The initial deposited capital for making investments.
Slippage
The difference between the closing level of an asset at payout time versus the actual market level at that time. This can occur during periods of higher market volatility when market prices move rapidly.

T

TRADING HOURS
Each asset has its own trading hours and trading days and holidays.
Technical Analysis
One of the two major schools of analysis, used to examine historical data to predict future trends in an asset price. At its core technical analysis believes that all aspects of an asset price are built into the market price, and that trends can be deduced to determine the direction an asset will take.