Newbies in binary options trading often come across words that they have never seen before. This article will help you understand terminology used in binary options trading. As the binary options are very simple, there are not too many terms.
A digital option is another name of a binary option. One more name used to call a binary option is “all or nothing”. Binary options return a fixed payout generated in case the price moves in line with forecast. If you buy an option expecting the price to rise, and it rises, you get a payout. If you buy a binary option expecting the price to fall, and it falls, you get a payout. The topic where binary options come from is rather interesting and described in a separate article.
CALL is a binary option contract meaning increase in price.
PUT is a binary option contract meaning decrease in price.
An underlying security is stock, commodities, indices, currencies on which a trader can buy a binary option.
Investment is an amount which you spend to buy a binary option. The minimum amount is $25.
Time of binary option execution is a set period during which a binary option contract is executed. This is the period for which you forecast a price movement. A binary option can be bought for a period of a minute, 10 minutes, 15 minutes, 30 minutes, an hour, a day, a week, and a month.
Expiration is a point of time at which binary option expires. At the moment of expiration, your profit or loss is calculated. An expiration level shows the price at the moment when the trade is completed.
A deposit is your capital in your personal account with a broker. You can use this amount to trade binary options. Minimum amount required by brokerage companies is $200.
In the Money means that an underlying security makes a profit. This can be both during the execution of a binary option and after its expiration.
Out of the Money means that an underlying security makes a loss and the price moves to the side opposite to a binary option contract.
Strike Price is a price of an underlying security at the moment of purchase. Future price movements are estimated based on this price.
A commodity option is a type of binary options the underlying instruments of which are commodities and raw materials like gold, oil, gas, sugar…
An index option is a type of binary options the underlying instruments of which are stock indices like Nasdaq, Dow Jones…
A currency option is a binary option an underlying security of which is a currency. The price of a currency depends on the price of another currency; their relation to each other is called a currency pair like EUR/USD where the price of Euro is given in the U.S. dollar.
A stock option is a binary option with stock as an underlying security. To trade these binary options, brokers provide stock of the world top companies and corporations like Caterpillar stock, Sumsung, Apple, Google…
Roll Forward is a possibility of extending the expiration time of a binary option. You should use it only in the case if you make a loss and sure that anyway the price will move in the direction you need.
Take Profit is a possibility of early closure of a binary option.