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Glossary

Asset or Underlying Asset

Assets or underlying assets are tradable assets available to investors and day traders. These are the individual assets that you are buying an option against. There many different types of options, including: USD/EUR, USD/ZAR, USD/GBP, CAC-40, Dow Jones Industrial Index, Yahoo Inc, Alibaba, and scores of others.

At the Money

This describes a financial position of an option where the option is in a neutral state. It is neither out of the money, nor is it in the money. The asset or underlying asset is effectively at the same price at which it was bought.

Bearish Market

This is the term used to describe a financial market or a stock that is in a downhill trend. Bearish markets are characterized by generally declining prices and performance.

Binary Options

These are otherwise known as digital options. Binary options are also known as all or nothing options since you are either in the money or out of the money. There are only two potential outcomes with binary options, hence the binary nature of these contracts. With binary options traders will receive a fixed payout after the underlying asset exceeds the strike price. The actual value of the binary option payout is predetermined when the contract is taken out. It does not matter how much the underlying asset’s price moves, suffice it to say that the price must move. With call options, the price of the asset must rise above the strike price at expiry. With put options the price of the asset must fall below the strike price at expiry.

Boundary/Range Instrument

When referring to boundary/range instruments, traders must determine whether the asset price will expire within a certain ‘range’ or not. Within that range, there are specific target price limits at an upper and a lower range.

Broker

Brokers are companies or individuals acting in the capacity of an agent where contracts are made between themselves and traders when options are purchased. There are scores of brokers including Trade Rush, 24Option, AnyOption, and OptionFair. Brokers offer different tradable assets based on their trading platforms and requirements.

Bullish Market

A bullish market is a market whose prices are rising. With respect to stocks, the stock price in a bullish market is on the incline.

Call

Binary call options are placed when the trader anticipates that the value of the underlying asset will increase at expiry time. Provided that the strike price increases, money will be earned according to the percentage gain agreed upon at the time the contract was opened.

Commodities

The assets or underlying assets that are purchased are known as commodities. These include items like coffee, lumber, gold, silver, cotton, wheat, and so forth. The prices of commodities are determined by market forces.

Currencies

Currencies are another form of tradable assets. However, unlike commodities currencies are traded in pairs. These include USD/CAD and USD/EUR among others.

Current Price/Market Price

This is the real time price of the underlying asset. The reported price is not delayed by a data provider. Many trading sites or brokerages make mention of delays in their current price. This data will typically be available in the T&C.

Deposit

Before you can trade any assets, it is important to add funds to a trading account. This is known as a deposit. The amount of the deposit varies from one broker to the next with a range between $100 and $500.

Early Closure

With early closure, traders can close out options, causing them to cease immediately.

Expiration/Expiry Time

This is a reference to the date/time at which the purchased options will expire. Once an option has expired it ceases to be traded. In binary options trading, the expiry times are shorter and can be completed in intervals of 60 seconds, 15 minutes, 30 minutes, 1 hour, 24 hours or even weekly trades.

High/Low

Call or Put options are other terms used to describe High/Low trades. With these options you are making a prediction as to the direction of price movement of the underlying asset at expiry. Will it be higher or lower than the strike price? When the high option is selected, it is a call option and the expectation is that the price will be higher than the target price. If you select a low option or a put option you are anticipating that the price will be lower than the target price.

Inbound Option

When an asset expires inside the lower/higher limits of target prices it is described as an inbound option.

Index Binary

When an option’s underlying asset is categorized as an asset, it is an Index Binary. These types of asset categories include the Nasdaq-100, the FTSE-100 and the Dow Jones among others.

Instrument

Financial instruments are known as assets or tradable assets. They include a wide range of indices, stocks, commodities and currency pairs.

In the Money

When an option has been purchased and the trader has generated a profit, it is considered in the money. To do so, the trader must place a call option and the price of the option must expire above the target price. In terms of put options, you are in the money if the price of the underlying asset expires at a price below the target price.

Investment Amount

When you purchase an option, the amount that you put down on the trade is known as the investment amount. An investment amount can start from as little as $1 with no fixed limit on the amount you can invest on any one trade.

No Touch

When you are trading One Touch instruments, the No Touch option is available. This is a reference to an asset price that fails to meet the target price during the option’s lifetime. Should the asset price reach the target price, it will then expire out of the money.

One Touch

With one touch instruments, you must predict whether the asset’s value will reach a target value by the time the option expires. If this happens, you will be in the money, failing which you will be out of the money.

Outbound Option

This occurs on a Boundary or Range Instrument when the price of the underlying asset expires outside the lower/higher limits of the target price.

Out of the Money

In an out of the money option, the purchased option has not generated a gain for the trader. In other words, the trader has incurred a loss on the investment. This can occur in two ways: a put option does not come to fruition, or a call option does not come to fruition.

Put

When you place a put option in binary options, you are predicting that the value of the item you are trading will decrease at the time your selected asset expires. Should the strike price decrease in that period of time, you will earn an amount of money determined at the time you initiated the trade.

Refund

Many binary brokers will refund a set amount of your initial investment should it expire at the money. In fact, several brokers will also refund a portion of your initial investment if it expires out of the money. This figure may be as high as 15%. For further details it is best to contact the broker in question for more information.

Return

The return is what you can expect to generate after your purchased option expires in the money. These returns are dependent on the tradable instrument and the unique asset with your chosen broker. You will know the return value ahead of time, so you will always be aware of how much you stand to lose or gain. If your initial investment was $200 and the return was 70%, you would gain an additional $140 on top of the $200 you initially invested, if your option expires in the money.

Stock

Stocks are shares in specific companies. These are traded on stock markets and include the likes of Virgin, Coca-Cola Company, Pepsi Cola, Barclays, Standard and Chartered, Apple Incorporated and others.

Strike/Target/Purchase Price

The target price or purchase price is often referred to as the strike price. This is the price of the underlying asset when you purchase the option. Once an option expires, the option price at expiry time is evaluated against the strike price to gauge whether anything has been gained or lost.

Underlying Asset Types

There are many financial categories that assets fall into. The 4 main categories include Currencies, Commodities, Stocks and Indices. Here are examples of different asset types:

  • Currencies: Euro, U.S. dollar, South African Rand, Swiss franc
  • Commodities: Oil, gold, silver, lumber,
  • Stocks: Apple Inc, Yahoo Inc, Amazon, Alibaba,
  • Indices: Nasdaq, Dow Jones, CAC,

Withdrawal

Once you have successfully invested money you will want to take that money out of your account. This process is known as making a withdrawal. The length of time it takes to initiate a withdrawal depends on who the broker is and the cost of the withdrawal method you have selected. There are many options available in this regard.