Mike’s Dictionary – Binary Options Terminology
In this section I included commonly used terms with Binary Options Trading. Many of the terms have multiple meanings but in this binary options dictionary you will find definitions specifically relating to the industry. Find a term missing? Leave a comment below and tell me about it! I appreciate any contributions and I will be sure to add relevant terms in necessary. Mike
Asset (underlying asset): Is an ownership agreement on an option, in Binary Options the ‘digital option’, which gives the right to sell or buy based on a predetermined agreement.
Bear Market: A market condition symbolized by a decreasing level of the asset of a certain period of time. Oftentimes, this market condition tells us that the sellers are in control of the market and provide a negative market sentiment.
Binary Options Signals: In reference to binary options trading, signals are trading directions sent out via email or SMS through a web-based or mobile platform instructing traders on how to execute trades. Many Binary Options Signals services are now available with competitive prices. Check out the complete list of Binary Options Signals services.
Binary Options Software: A software developed with the intention to increase or help a trader become more accurate when placing trades while trading binary options. Signal softwares include the use the preset custom indicators and sometimes unique charting solutions.
Bonus Incentive: In relation to Binary Options, cash bonuses are common and are usually granted with an account restriction. The depositor gets a cash incentive in return for a commitment to a predetermined volume of trades, which is necessary for the depositor to request a withdrawal.
Broker Reviews: Reviews conducted by individuals where they go over the benefits, disadvantages or basics associated with a binary options broker.
Bull Market: A market conditions symbolized by a rising price of an asset that takes place over a period of time. This market condition tells us that the buyers are in control on the financial markets.
Candlestick Charts: These technical analysis real-time charts assist with reading market trends and are mainly used with Price Action Trading and short-term investment. Candlestick charts are made up of bars consisting of the asset’s open,high,low and close price and these figures are used to determine if the “bulls” or “bears are in control. Check out the complete Candlestick Charts Guide.
Call Option: An upward prediction is referred to as a Call Option, the trader takes a position that the asset’s price will increase within the given time frame.
Charting Solution: A website or software used by many binary option traders where traders can analyze and watch the live feed of assets while adding indicators. Freestockscharts.com is a commonly used online charting solution.
Close Now: An option that traders can use on some binary options platforms where they have the ability to invest in an option before the expiry. An example would be if you invested that the price of Apple would increase with an hour long expiry, but after 30 minutes you see it is decreasing, you have the ability to cover your potential losses and place a downward trade.
Commodities: The general term given to assets that fall under the category of raw materials and belong in different sectors. These different sectors are food, energy and metals and among the most common would be gold, silver, oil, and corn. When trading commodities with binary options we are predicting whether the price of the commodity will rise or fall by the expiry time.
Correlation Analysis: A form of technical analysis where you take correlating pairs and predict that they will perform in a certain direction. Correlating assets have a strong pull on their relating assets so they are likely to head in the same direction as the targeted asset.
Currency Pairs: A financial instrument where the value of one currency pair directly correlates to the price of a different currency pair. The first currency listed is known as the base currency while the second is known as the counter currency. Trading currency pairs with binary options requires the trader to predict whether or not the price of the asset will climb or fall within a certain expiry time. An example would be the Eur/Usd displaying a current level of 1.38702 meaning that 1 Euro is valued as 1.38702 U.S. Dollars.
Deposits: Funding your trading account with the minimum deposit amount or of an amount that you please. Oftentimes brokers allow you to fund a trading account with numerous methods, such as a with a credit card, bank-wire, money brokers, PayPal, and Cash-U. Oftentimes after a deposit you will be asked to verify your identity just to confirm that no fraud is being committed.
Digital Options: A typical trading style offered by many binary option brokers. Has a predetermined expiry time along with investment payout. The trader will receive their investment payout if they successfully predicted whether the price of the asset was higher or lower than their execution levels.
Execution Rate: The entry level in which a trader places an investment.
Expiry: For every binary options contract there is an expiration date which can be manually changes prior to each trade. The trades outcome is determined based on the final price level (Expiry) at the end of the given time frame once the asset expires. If the asset ‘Expires In The Money’ the price level changed in favor of the predicted level while if the asset ‘Expires Out Of The Money the price level changed against the predicted price level.
Exponential Moving Average: Also known as EMA, this is a common technical statistical analysis of the asset’s recent moving average rather than the earlier price levels which are not given any weight as with Simple Moving Averages. The EMA equation is used to capture short-term trends rather than long-term affects and price movements. EMA Indicators are available for traders using the free Meta Trader 4 charting solution.
Fundamental Analysis: The study of the economic factors that may directly or indirectly affect the asset’s price level. Fundamental Analysis deal with ‘Why the price is changing’ while technical analysis deals with “How the price is changing”. The study of ‘why the price is changing’ requires extensive research in the search for indicators and major events that can include the asset’s price, signaling the predicted direction. Learn more about Fundamental Analysis in my YouTube Video.
Futures: Serve the purpose of contracts which obligate the buyers and sellers to purchase or sell an asset for a predetermined time and set price level.
Hedging/Fencing: Purposely buying an asset or option with the sole purpose to reducing risk that may have occurred during a previous investment. Hedging is a popular trading strategy used in binary options because all trades have a predetermined payout and expiration time.
Instrument: Another term used to represent an asset or another financial instrument.
In-The-Money: A successful prediction is referred to as an In-The-Money prediction where the traders receives a predetermined payout instantly into his account. The payout is usually between %60 to %85 on In-The-Money trades. Call Options require that the price of the asset expire above the purchased price level, while put options require that the price of the asset expire below the purchased price level.
Investment Amount: The sum of money used to fund the binary options trading account. The minimum required is between $100 and $500 with the online brokers.
Mid Market: The summation of the bid price along with the ask price. This value represents the real value of the financial markets with no spreads between the bid and price level.
NADEX: Otherwise known as the North American Derivatives Exchange, it is a binary options broker offering investment opportunities that have a similar format to Forex trading. Is a great choice for investors who originally trading Forex but would like to expand into the binary options trading field as well.
No Touch: A trading style offered by many binary option brokers where traders predict whether the price of an asset will surpass or not reach its a previously determined level.
One Touch Options: A trading style practiced by many brokers where traders can often receive a much higher payout ranging from 150 – 550%. In order to compensate from an investment you must have accurately predicted that price surpassed one of the two predetermined levels.
Order flow: The derivative of price action, it is the live feed of an assets health, otherwise known as the summation of all the buy and sell orders during any given moment of time.
Out-Of-The-Money: A losing prediction is referred to as an Out-Of-The-Money prediction where the trader loses his ‘trading amount’ invested once the Option settles at his expiration price.
Payout: The cash amount funded into the traders account instantly upon the expiry of a winning trade. The payout for a Binary Option is determined in a form of a ‘digital contract’ where the agreement is set in advance. The payout is between %60 and %85 on winning trades.
Put Option: An downward prediction is referred to as a Put Option, the trader takes a position that the asset’s price will decrease within the given time frame.
Range Options: A trading style offered by most binary brokers where traders predict whether or not the price of an asset will be fall within two predetermined price levels. This style of trading typically offers higher payouts and is popular among traders who use hedge oriented trading strategies.
Reuters: A live feed as one of the worlds largest financial data providers that provides live rates of the assets in the financial markets to the trading brokers.
No Touch: A trading style offered by many binary option brokers where traders predict whether the price of an asset will surpass or not reach its a previously determined level. An imaginary level that occurs when the price of an asset bounces of the same price level during the price action of an asset in a downward direction.
SSL: Otherwise known as Encrypted Security, it keeps your financial and personal information safe, so you can be worry free when signing up or providing your information to a binary options broker.
Stocks: A stock confirms that the holder of stocks has bought a portion of the company; allowing the trader to a profit relative to his share of the company. However, in binary options when you are investing in a stock you are simply predicting whether the price of the asset will rise or fall by a predetermined time period.
Support Level: An imaginary level that occurs when the price of an asset bounces of the same price level during the price action of an asset in an upward direction.
Technical Analysis: A form of analysis that oftentimes requires the application of trading indicators and focuses on the visualization of an assets order flow. Does not require the use of a financial portal but instead a charting interface such as MetaTrader4.
Volatility: Oftentimes a problem with currency pairs, it is the likelihood that an asset will change directions in a short amount of time. Makings accurately predicting the future direction of an asset much harder, so try trading assets that have high volume and are less prone to change directions quickly.
Volume: The total number of shares or contracts traded during a given market period. Also serves as a technical analysis instrument where traders can predict whether or not a trade is worth a market move.
Withdrawals: Executing partial or all of your funds to be transferred out of your trading account to your desired banking or financial account. Oftentimes takes up to 4-7 business days to complete.
More Definitions Coming Soon… Checkout the Binary Options Blog for the latest news, trading strategies and binary options related topics.