Terminology Of Binary Options


As traders begin to explore the world of binary options, it can be difficult to understand all of the different key words and terms that get bandied around. In order to fully benefit from investments in binary options, it is important for traders to feel comfortable in their understanding of these terms.

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Here are some of the top terms that you are likely to encounter as you invest in binary options:

  • Asset: An asset is the specific target whose value is followed by the investment. In most cases, this will be a stock, currency, index, or commodity.

  • Binary Option: The name binary option derives from a trader’s ability to choose whether the given asset will likely rise or fall in value within a specific window of time. Because there are only two choices for value fluctuations, the trade is binary.

  • Broker: A broker is a party that completes the investment transaction, usually for a fee.

  • Call Option: Also known as a high option, this term means that the trader believes the price of the asset in question will rise within the window of time specified.

  • Current Rate: This term refers to the market value of the given asset at the current point in time.

  • Expiry Time: When a binary option is implemented, traders specify the time at which the value will be re-examined to determine if it has risen or fallen. This is also known as the time of expiry.

  • Fundamental Analysis: Fundamental analysis is the type of research that a trader should perform in order to make an educated guess as to the future price of a given asset. This can include valuation of complementary or opposing assets, events within the financial market, or even the weather, depending on the asset in question.

  • In the Money: A trade is referred to as being “in the money” when the trader’s prediction of future value for the asset proposed within the binary option is accurate to the actual direction of the value fluctuation of an asset.

  • Out of the Money: This term refers to a situation in which the trader has not correctly estimated the direction of the value fluctuation of an asset.

  • Put Option: Also called a low option, this term is used to describe a trader’s prediction that the value of the asset in question will fall within the specified period.

  • Profit: Once a trade expires, the amount of money that the trader makes on the transaction is called the profit.

  • Technical Analysis: Traders who employ technical analysis use detailed charts to examine the history of an asset, using this information to attempt to determine the likely directional changes of the asset in the near future. It does not include an analysis of current market factors.

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