Binary Options Glossary

Untold numbers of people everywhere are taking advantage of the powerful online trading platforms that are available on the market for forex trading. Binary options are becoming more and more popular as the trading method of choice for traders and investors everywhere.

If you want to take advantage of the incredible potential made available with binary option trading in the forex markets, you will need to know how the process works and how to buy and sell like the pros. That means knowing the terms and lingo with option trading.

Here is a simple glossary to get you started with learning all about binary options.

Asset

In forex trading, the currency pair being traded.

At-the-Money

No loss or gain due to the value of the asset being at or very near its purchase value at expiry.

Call Option

Earns the investor a profit if the asset value is higher at expiry than the purchase price.

Contract

Essentially, the agreement between the buyer and seller, complete with conditions for profit or loss. A contract for a forex binary option usually contains the currency pair (asset), expiry time, and expiry price. Each contract has a fixed price and fixed payout.

Digital Options

Another name for binary options.

Expiry Price

The price of the asset being traded when the contract expires. Determines whether the option is in-the-money or out-of-the-money in above-below binary forex trading.

Expiry Time

When the contract expires (ex. 11:59 PM on Tuesday, April 1).

In-the-Money

An investor realizing a profit at the expiry time of the asset. For example, a Call option contract that is in-the-money is one that has the asset price finish higher than the purchase price.

Over-the-Counter (OTC)

Assets are sold directly between two parties, outside of exchanges. The primary channel by which binary options are traded.

Out-of-the-Money

The investor realizes a loss at the expiry time of the asset. For example, a Call option contract that is out-of-the-money has the asset price lower than the purchase price at expiry. Most binary options out-of-the-money result in losing 80-100% of the contract purchase cost.

Put Option

The investor realizes a profit if the asset value is lower at expiry than the purchase price. Basically is a way to bet against an outcome (i.e. betting that a price won’t be as high as the contract states at expiry).

Strike Price

In binary options, the value of the asset at the time of the sale. This price determines if the contract is in-the-money or out-of-the-money. Can also refer to the price that must be reached in order for the contract to make money (in touch options).

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