Basic terms and concepts of the binary options market
Binary options tradingThe Binary Options Market in spite of its popularity and availability has its own nuances, without the knowledge of which the trader, especially a beginner, will find it quite difficult to grasp what is happening in his terminal. We have collected the most basic terms of the binary options market, the understanding of which will bring you closer to the profitable trading.
- A deposit is money that the trader deposits to his account at the broker of binary options for further use in trading. There is no fixed minimum deposit threshold - all brokers have different thresholds.
- Investment - The amount for which the trader buys a binary option. The minimum amount to buy an option also differs from broker to broker.
- Basic asset - any trading instrument (currency pair, share, commodity, index, etc.), a deal on which is made by the trader.
- Commodity option - option, in which the underlying asset is oil, gold, wheat and other commodity market assets.
- Currency option - an option in which the underlying asset is a currency pair.
- Stock option - The underlying assets are stocks and securities of large companies.
- Index option - The underlying asset is the major stock market indices, such as the Dow Jones index.
- Option Call - the purchase of an asset with the expectation of its further growth over a set period of time.
- Option Put - the purchase of an asset with the expectation of its further decline over a set period of time.
- Expiry date - This is the time interval after which the option will be exercised. For example, if the expiration time of an option is 15 minutes, then after this time the option purchase price and the current market price of the asset will be compared.
- Option exercise price (level) - is the market price of the underlying asset at the time of expiration of the binary option. When an option expires, the purchase price is compared to the strike price to determine if the trade is unprofitable or profitable.
- In-the-money - this term is used without translation into Russian. Literally it means "in the money". It is used if the trader is in profit during the transaction or at the end of the expiration period. For example, a Put option on the euro/dollar pair was purchased. If quotations decrease during the trade, the trader will see an in-the-money mark. If by the end of the expiry period the strike price of the option is below the purchase price, then the trader will make a profit. This is also in-the-money.
- Out-of-the-money - a term that is the opposite of the term In-the-money. Literally, it means "no money. This mark appears if the price of the underlying asset goes against the purchased option. If at the expiration of the option, the forecast does not come true, the trader will suffer a loss. Out-of-the-money is the risk of losing or losing an investment.
- Roll Forward - Extending the expiration time of a binary option for a certain period of time. It can be used if the trader is in out-of-the-money when the expiration time approaches, but is sure that after a certain period of time the situation will change to in-the-money.
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