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Glossary

Here you will find an alphabetical list of terms that are associated with trading in general as well as specific terms associated with binary options. There are many terms that you will need to know and understand in order to trade successfully in binary options and that is why we have taken the time at binary-options-strategy.org to make them known to you. From time to time, we will add more phrases and terms so come back occasionally to freshen up on your trading lingo.

Glossary of binary options and trading terms

Asset
An individual stock (Google or Apple), commodity (Gold, Oil or Silver), index (NASDAQ, Dow, Cac, Dax), or forex pair (EUR/USD, USD/JPY, GBP/USD)

Asset Class
A stock, commodity, index or forex pair. Within each of these categories, there are many different assets available to trade.

At-the-money
If the option expiry price is similar to the option buying price than the investment amount is returned fully to the investor.

“Call (Above) Option
An option that provides the trader with a fixed profit when the underlying asset is higher at the time of expiration than at the time it was purchased.

Current Price
The last price according to real time data unless otherwise is stated.

Digital Options
Another name for binary options, digital options typically refer to binary options that have fixed returns.

Expiry Time (Time of Expiration)
The time and date at which an option expires and the trade is determined to be in-the-money (Profitable) or out-of-the money (Unprofitable)

Forex
Foreign Exchange is shortened to the first 3 letters of FOReign and the first 2 of EXchange. The market of foreign exchange is the second largest in the world after US treasuries and is one of the most interesting as it involves all world currencies and their interaction against each other.

Fundamental Analysis
The study of macro-economic forces and news and how the influence the market prices. Traders use fundamental analysis to determine how macro-economic factors will influence the value of an option or its underlying asset.

Hedging (“Fencing”)
The strategy of buying an asset or option of an asset in order to reduce risk in another position. The use of options for hedging is ideal for this purpose due to the fact that the “cost” of hedging is known in advance whereas using another asset to hedge, the cost can never be determined in advance.

In-The-Money
Describes a profitable trade based on the following 6 possibilities:
1. When the market price is above the expiry or strike price, in the case of ABOVE or CALL options
2. When the market price is below the expiry or strike price, in the case of BELOW or PUT options
3. When the market price DID NOT TOUCH a strike price, in the case of NO TOUCH options
4. When the market price DID TOUCH a strike price, in the case of TOUCH options
5. When the market price DID remain in a range at expiry, in the case of IN RANGE options
6. When the market price DID NOT remain in a range at expiry, in the case of OUT OF RANGE options.

Out-of-the-money
Describes a losing trade based on the following 6 possibilities:
1. When the market price is below the expiry or strike price, in the case of ABOVE or CALL options
2. When the market price is above the expiry or strike price, in the case of BELOW or PUT options
3. When the market price DID TOUCH a strike price, in the case of NO TOUCH options
4. When the market price DID NOT TOUCH a strike price, in the case of TOUCH options
5. When the market price DID NOT remain in a range at expiry, in the case of IN RANGE options
6. When the market price DID remain in a range at expiry, in the case of OUT OF RANGE options.

“Put (Below) Option
An option that provides the trader with a fixed profit when the underlying asset price is lower than the price it was purchased at the time of expiration.

Range Option
One of the tree types of binary options currently available at retail binary options brokers. With range options the trader must predict if an asset price will be “In or “Out of a predetermined range at the time of expiration. An option type that is considered one of the most effective means of hedging; as well as providing speculative opportunities.

Strike Price
The price that an underlying asset much touch in order to be in-the-money or out-of-the money.

Technical Analysis
Technical analysis is based on charts and statistics. Traders use technical analysis to predict the future movements of options and their underlying assets based on their past performance. By looking at the chart of an asset, patterns appear and the study of technical analysis is based on such pattern recognition as well as the use of mathematical/statistical tools to gauge future movements in any given market or asset.

Touch Option
One of the three types of binary options available at retail binary options brokers. With touch options the trader must predict if an asset price will touch a predetermined strike before the time of expiration.

  

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