Binary Options Terminology The Cornerstone of Trading

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Binary Options Terminology: The Cornerstone of Trading

Trading with binary options, and trading, in general, belong to a very narrow, specialized field. Therefore, users inevitably come into contact with specialized professional approaches, which are referenced to through distinct terminology. The meaning of them wouldn’t appear obvious to laymen, moreover, some of them mean something completely different in everyday life. Therefore, every beginner must acquaint themselves with the meaning behind the professional slang actively used by traders. Traders should begin their journey with this specifically, along their path of this new, desirable, and very profitable field. Because, even in the first educational lessons, available on the site of most brokers, actively use professional terminology from the very beginning.

The dictionary of terminology for binary options is reasonably concise, and the majority of terms are borrowed from Forex. The basic list includes a few dozen terms, which can be memorized quickly without much effort. An understanding of professional slang allows beginners to get the essence of what is happening, the principles of trading strategies and trading in general. It also enables mutual understanding with other traders, allowing you to converse on the same level and exchange experience. In general, it is the basic cornerstone to trading. This article is dedicated to giving an overview of basic terms for trading with binary options. To start, we’ll define the main key terms, so the article is divided into chapters.

Defining Terms

Binary option – a type of contract on the stock market. It differs from other classic types of trades on the exchange market, such as Forex, due to the binary and so-called fixed-term delivery. In practice, the understanding of options was transferred from the physical exchange, however, we will consider it exclusively in the context of modern internet trading.

An options contract has a fixed percentage of profit and loss. If the forecast is realized, then the trader makes a profit, if it is wrong, then the capital is lost. The profit margin does not depend on the price interval on the chart from when the trade was opened to the expiration. Here lies the essence of this type of binary contract, which is where they got their name.

The Various Types of Classic Options :

  • CALL — a type of contract on the stock market, based on rate growth. It’s referred to different names: “High”, “higher”, “buy”, “increase”, and so on. In order to start accruing profit in your account, the asset exchange rate needs to increase by at least 1 point.
  • PUT — an analogical contract, based on a decline. It also goes by many names: “Low”, “down”, “sell”, and so on. The principles of it are the same as with PUT. To start accruing profit in your account, the asset exchange rate needs to decrease by at least 1 point. If the rate remains the same, then 100% of the total investment is returned.
  • Turbo-options. This type of contract is usually in a separate category of its own. In essence, they are typical classic options, but with a shortened active period, from 1 to 5 minutes. Several brokers set the minimum duration for a trade at 30 seconds.

Other than the standard “buy/sell” contracts, some brokers offer traders other types of options. They are different based on their system for earning a profit and, usually, have a higher percentage of income. The profit with a classic approach to trading ranges from 70% to 95%, but with these specialized contracts, the indicator can increase from 500-1,000%, and even more. However, it is dependant on the contract’s terms and conditions, as set by the broker. So, let’s consider what sets them apart from classic options.

  • “One Touch” — is a contract, where the condition for closing the trade in the positive is that the price touches a specific level. One touch is enough, and it does not matter when it happened. If the price reaches the set mark even once, then the trade turns a profit every time. The border lines are usually set by the broker, but on several platforms, you can control it yourself. The profit margin depends on the distance from the point of the current rate to that of the agreed upon level, it ranges from 100% to 500% or higher.
  • “Border” — is a trading option, where the trade is placed on the understanding that the price will stay within a defined corridor, indicated on the chart, or, on the contrary, it will definitely break through it. The profit is also increased and dependant on the intensity of the price fluctuation.
  • “Stairs” — an option with multiple levels, the profit increases in steps, dependent on which of the “steps” the price is on when the trade expires. It is the most profitable type of contract, which brokers can earn up to a 1,500% return on the investment if it expires on the last step.

There are also other types of trades, such as pairs, FX/CFD, No Touch, and others. However, they are only available from certain brokers, who work on a specific trading platform.

Other Binary Options Trading Terms

Asset — the subject or good, which is available to trade on the platform. Valuing the functionality of a binary options broker ensures that you can trade practically any good. That is clear. Some companies allow you to trade the most exotic assets, like sugar or wheat. If the good is listed on the stock market and it has a rate, then it can be traded with binary options.

Sub-varieties of Assets:

  • basic — an asset, used to trade at the current time, chosen by the trader;
  • currency — the national currency of a large country, which is traded in pairs, like against the dollar or another country’s currency;
  • goods — an asset with the noted price rate of a physical commodity, for example, oil, gas, precious metals or agriculture;
  • indexes — financial tools, which depict the current situation in concrete industrial sectors of specific countries;
  • cryptocurrencies — principally a new type of monetary unit, existing only in the virtual world, which isn’t backed by any guarantee.

Trade — one trading operation performed on a broker’s platform, with an acquired option. They are also often referred to as a “rate”, due to a certain similarity with gambling. However, brokers’ BO work is principally different from that of casinos’ and or bookmakers’.

  • Expiration — the duration of a trading operation on the market. This indicator defines the moment in time when there will be a fixed result from the trade. If the forecast is accurate, then the percentage of profit from the trade will be sent directly to your account. If the opposite happens, the option will be closed on a loss. The maximum financial risk is limited to the total investment made to the trade, irrespective of how far the price moved in the undesirable direction.
  • Contract expiration price — the relative price value of a concrete asset at the time the trade expires.
  • Investment — the total financial capital placed in one options contract.
  • Profit — the percentage that accrues on the financial balance, when trades are correctly forecasted, with successful expirations.

Strategy — a selection of outlined principles and rules, aimed at achieving a specific trading result. They are previously compiled systems, made up of concise indicators and forecasting and trading market methodology.

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Classic Trading Strategies Divided By Type:

  • Indicators — methods for market analysis, based on mathematical calculations of price formation on the chart. Methods of technical analysis are applied. The computing capabilities of modern technology enable traders to avoid written calculations. All of the technical portions are conducted automatically. However, the interpretation of the resulting indicators is the job of traders themselves.
  • On the news — a fundamental approach to market analysis, where traders research upcoming economic events in a specific sphere, rather than analyzing the chart. If it is a currency, then its course will be influenced by various news releases related to macroeconomic situations in the country of origin.
  • It is also applied to asset trading. Fundamental analysis is considered more difficult than technical. However, thanks to the services of “Economic Calendar”, so long as they have basic trading skills, anyone who wishes can try their hand at trading the news.
  • Price Action — is a strategy based on visual evaluation of what is happening is on the market. The point is that price doesn’t move chaotically, but in a specific manner, following established laws and regulations, developed by traders over several decades of trading on the market. In this type of strategy, specialized analysis tools, as a rule, aren’t applied. In their place, traders detect various cycles of market movement — growth/recoil, levels of support/resistance and so on.
  • Graphic — a sub-strategy, based on market analysis on a live candle chart. In this one, methods of drawing are actively used, including auto figures in the form of channels, lines, rays, Fibonacci, fans, and forks. For example, the live chart on TradingView provides several hundred different figures for drawing. It makes the process of detecting characteristic patterns and figures that form on the chart over time easier. Their appearance signals the growth of a defined, famous price behavior scenario. Strategies based on candle analysis cycles fall into this very category.

Technical analysis — is a system is based forecasting, through the study of the laws of market behavior, formed through the analysis of historical analogical situations. The methodology is very effective because the fundamental principles of the market remain unchanged over time. With that goal, indicators with various scripts are used, as well as methods of graphic analysis and visual evaluation of price behavior on the chart. This approach is based on the conception, some say legend, that the chart holds absolutely all the vital information, which a trader would need to effectively forecast the market. Furthermore, all the issues are solved through accurate interpretation.

Fundamental analysis — the analysis of concrete companies or countries with the aim of forecasting changes in share capitalization, or the national currency of a country. With that goal, analysts closely study information from a variety of sources, which reflect a range of industries, investments, perspectives and basic indicators, which hint at information in the economic plan. In contrast to the last approach, traders aren’t interested in price behavior on the chart. Fundamental analysis, in theory, produces more significant results. However, the difficulty here is in the limited number of information sources and, more importantly, in the accuracy of the analysis. Of particular value, is the so-called insider information, received from sources inaccessible to the wider public.

Money management (the management of capital) — is a system of rules, which outline how an investor should manage their funds. Investing is associated with a high level of risk, which directly in proportion with the possible percentage of profit. Therefore, the main goal of money management is to minimize risk. Following these rules allows a trader to retain their funds even in undesirable situations, such as, when a trading strategy used leads to a loss. Many beginners ignore this moment. However, it is their biggest mistake. In terms of importance, money management comes before any concrete trading strategy.

Conclusion

In this article, we have gone through the list of the most important terms, widely used in trading with binary options. However, it is worth noting that a concise list of terms would include several hundred words. If we tried to go through them all, the article would be so long that it would be confusing to any beginner, having yet to master any of the described. Moreover, an understanding of basic terms enables you to orientate yourself in this field, where it is vital to gain as quick of an understanding as possible.

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

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.

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 Glossary

Trading with binary options, as you probably know, requires you to be a real pro in all of the terms and basic rules of this activity. For this purpose it is strongly recommended that you become aware of those words with important meaning which you will encounter during your trading activity. Be aware that most binary options brokers provide some glossary packs too, but in most cases this pack of terms is usually quite limited. We are about to disclose to you everything that you really need to know, so if you are motivated and focused enough, let`s get started with the quick and effective education course now!

Common Glossary For Binary Options Trading – Basics

Let`s begin with some of the most common terms from the binary options trading glossary. After all, proper and gradual learning is the most optimal course. Besides, by studying the glossary step by step, it will be easier for you remember the most significant words from the binary options glossary!

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Asset

The asset is the underlying tool or instrument that is chosen for binary options trading contract determinations. Assets can include stocks, indices, commodities and the different currency pairs you trade with.

At the money

With this term, we talk about the instant in time, in which the targeted value of a binary option becomes the same as the price of the underlying asset selected by the trader.

Current price

The current price is the value (the amount) that is determined in almost real time and it is the opposition of the most price information that is in many cases delayed by a particular period of time – about 15 minutes.

Time of expiration

Usually known as expiry time, with this term we point to the date or the time, when the value of the underlying asset will be compared to the strike price in order to form the final outcome or your payoff. At the expiry time (time of expiration) the binary option you traded then becomes void and ceases to be traded.

In the money

If a binary option is in the money, then it has value upon the expiry time. Usually, a put binary option is in the “in the money” status when the underlying security price is below the strike price. Alternatively, a binary call option becomes “in the money”, when the underlying security price goes above the strike price.

Strike price

Speaking of strike price above, let`s figure it out what this term means. The strike price, in a few words, is determined by the underlying security price at the very moment when the binary option is purchased and the contract is made. Once the binary option reaches its expiry time, the underlying security price must be compared to the strike price in order to see if the binary option has won, or lost its value, or in other words whether it is in the money or out of the money.

Payout

The payout is the value of money that you as a trader receives as a profit from binary options trading activity as to a particular binary trade.

Boundary instrument

This is a kind of a tool that is applied by the traders in order to make the prediction about the underlying asset value – and to be more specific, whether this value will expire during or out of the set of ranges – simpler and quicker.

Glossary Terms for Advanced – Learn the Following, too!

Even though a little bit more specific, the following terms from our glossary are also important to be learnt, known and applied during your binary options trading activity. We divide our specially tailored glossary in two parts in order to simplify it for you, and to offer you a quick pause during your learning process. But let`s not lose any more time, and begin with the next portion of significant binary options additions in our fantastic and helpful glossary!

Bear market

This is where the market (that is usually referring to a financial or stock market), prices are almost in all cases in a downward trend.

Bull market

This is where the market (that is usually referring to a financial or stock market) prices are almost in all cases in an upward trend.

Commodities

Commodities are the types of assets that you can purchase a binary option to trade in. In general, the commodity is a physical object and it can be a precious metal – gold, silver and etc – as well as a manufacturing resource like cotton or even petrol. The price of each of the commodities we have chosen (and the rest of them) is determined according to many economic factors and changes.

Currency

Currency is another asset that you can trade with. Note that currencies usually come in pairs, and the most common among them – USD/GBP, EUR/CAD and etc – may be found in almost any binary options broker.

Currency Price

The currency price is the other name of the market price term. This is the present value of the underlying asset and it is always announced in real time – i.e. with no delays by the financial information provider.

Deposit

The deposit is the amount of money you invest with a binary options broker, when you complete a registration and create an account. This is the total value you put into the brokerage e-wallet of yours to make trades with.

Early closure

The early closure is the moment when the traders receive the possibility to close a binary option which then, instantly causes it to expire, ceasing the contract.

Index binary

With the glossary term index binary we describe the binary option which has underlying an asset that is measured to an index. Such binaries can be understood by these examples: Dow Jones, FTSE-100 and etc.

Investment amount

When you purchase binary option to trade it, you pay a particular value and this is the investment amount. These amounts – prices – vary according to the binary option, the market, as well as the broker you are signed with – from $1 to $1000.

Refund

Popular in trading experience in general, this glossary term refers to the entire (or a part of) amount of your investment you have returned to you in a situation when the binary option expires at the money.

Return

The return amount is the amount that you earn right after the purchased binary option expires in the money. The return value ranges according to the instrument you have traded with your binary. The particular asset you have chosen, as well as the broker type you are trading on, also affect for the return value. Since the return value is always pre-determined, you know in advance the eventual loss or profit you will get from the purchased binary.

Stock

A type of asset, this is the financial share of a company – for instance Microsoft, Samsung, Twitter – and etc which you trade with.

Withdrawal

When you reach a moment that you have earned a fair sum of money from your binary options trading activity, then, you will want to have this money withdrawn from your brokerage account and deposited in your your debit card or bank account. To receive this money, you will have to make a withdrawal. Note that the withdrawal methods and terms and conditions are different between brokers, and depend on the broker you are trading in with binaries.

Charting

With charting you practice plotting a binary option value at some very beneficial moment of time. Charting in general is a tool and it is a way of trading with binaries. The main purpose of charting is to be helpful with technical analysis.

Technical Analysis

And since we have mentioned it, let`s explain the technical analysis term, too. This is the analysis – and the usage of it – when you want to undertake research in advance and to find out additional data points in order to make your prediction of the prices and the market movements of the assets you have chosen more optimal and profitable.

Feel free to start your learning course with our helpful and very useful binary options trading glossary now! We are sure that it will be very supportive to your overall education in the field, so do not lose any more time and start learning right away! Good luck!

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