Binary Options Glossary
Below you can find an extensive Binary Options glossary with the binary options terminology that you will encounter regularly.
Asset
The instrument on which the trade is based. Binary options are traded based on currency pairs, stocks, commodities and indices.
At The Money
When the price at expiration equals its strike price. Normally, you won’t win or lose anything in this case.
Boundary or Range Option
Instead of the usual call option or put option, you speculate that the price of the underlying asset will remain within a predetermined bandwidth.
Call Option
With a call option you speculate that the value of the underlying asset will increase.
Commodities
Commodities are raw materials used in the production of goods. Well-known commodities are gold, silver, palladium, oil, copper, grain, cocoa etc.
Digital Option
A digital option is another term for a binary option.
Early Closure
Early Closure is a possibility that some binary options brokers offer. With early closure you have the option to close your binary option before the original expiration time. Thus, you can decide to take a lower guaranteed profit or to reduce your loss.
Exotic Options
Exotic options are simply more complex versions of binary options. These are used by major merchants before being made available to the public.
Expiry Price
The expiry price is the value of the underlying asset when the option expires.
Expiry Time or Expiration
This is the date and time when a binary option expires. These can vary widely but the most common expiration times of binary options are often end of day, one hour, 45m, 30m 15m, 10m, 5m and even 60 seconds.
Forex
Forex is just an abbreviated term for Foreign Exchange. The Foreign Exchange market is the second largest in the world and involves all global currencies.
Fundamental Analysis
Fundamental Analysis is used by many traders to estimate whether the rate of an asset will rise or fall. Examples of fundamental analysis are the analysis of macroeconomic figures, central bank and government decisions, growth rates, inflation figures, even the weather.
Futures
Futures are basically the same as options but often with longer contract duration and more flexibility when it comes to interim sales.
Hedging/Fencing
Hedging means buying an asset or option with the aim of reducing the risk of another investment. Binary options are considered an ideal hedging product as the risk and payment are already known in advance.
High/Low Option
This is the most common form of binary options specifying whether the price of the underlying asset will rise or decrease within a predetermined time limit.
Low
The term “low” refers to a trade or an option that a trader feels will expire at a price lower than the target price.
Market Price
The market price is the price that reflects the current value of an underlying asset.
No Touch
With a No Touch option, you speculate that the price of the underlying asset will not reach or exceed a predetermined price level during the term of the option.
Out-of-the-money
If a trader is out-of-the-money, it means they have experienced a loss.
One Touch
With a One Touch option, one speculates whether the asset value will reach a predetermined price level before the option expires.
Outbound Option
This term is an option on a Boundary/Range Instrument and refers to when the underlying asset expires outside the higher and lower limits of the target prices.
Payout
The payout is the profit made when an option expires as expected and is in-the-money.
Put Option
Traders use a put option if they believe that the value of the underlying asset will expire at a lower price.
Range Option
Instead of the usual call option or put option, you speculate that the price of the underlying asset will remain within a predetermined bandwidth.
Refund
The refund is how much money is returned to the investor if an option expires at-the-money. How much the refund is depends on binary options broker.
Return
A return is how much money is given to the investor if an option expires in-the-money.
Strike Price
This is the price at which the binary options broker is willing to sell the option.
Target Price
This is the same as the strike price, so the price against which the binary options broker is willing to sell the option.
Technical Analysis
Technical Analysis involves studying patterns of market prices.
Touch Option
With a Touch option, you speculate that the price of the underlying asset will reach a predetermined price level within the term of the option.
Underlying Asset
The instrument on which the trade is based. Binary options are traded based on currency pairs, stocks, commodities and indices.