Ultimate4Trading is committed to providing you with the information you need to understand how to trade binary options – this includes defining the terms you need to understand when engaging in binary options trading. In an effort to educate you on common terms related to binary options trading, we’ve developed the glossary below that you can use as a reference so you can learn more about trading binary options and begin executing trades on the Ultimate4Trading platform.
This term refers to the item that you are trading on and the asset you are purchasing an option against. Examples of assets include executing trades on stocks such as Google, Apple or Facebook; currency pairs such as the EUR/USD, GBP/USD or USD/JPY; indices such as the FTSE 100, Dow Jones or S&P 500 as well as commodities such as the gold or oil.
At the Money
This term refers to the position in which the option is in when it expires neither in-the-money nor out-of-the-money, but at the same price at which it was purchased (strike price). In this situation there would be a neutral gain. Take an example where the original price of a stock is $55.02 and you predict it will rise upon expiration. If the option expires and the stock is still $55.02, the option will expire at the money.
The term bearish is used to describe a financial market or stock whose price is generally on a decline.
Binary Call Option
Binary call options are executed when you predict that the value of the item you are trading will increase in price by the time of your chosen expiration. If the strike price increases in that time, your trade will expire in the money and you will earn a return.
Binary Options Broker
A broker is someone or a company acting as an agent in where they make a contract between a trader and themselves in respects to purchasing options. Each broker has a different set of assets available to trade.
Binary Put Option
Binary put options are executed when you predict that the value of the item you are trading on will decrease in price by the expiration time. If the strike price decreases by that time, your trade will expire in the money and you will earn a payout on that trade.
The term bullish is used to describe a financial market or stock whose value is generally increasing.
In an early closure situation a trader has the ability to close an option and immediately expire it so the contract will cease to exist.
The expiration price is the price of an option at the expiry time. Let’s take an example where you executed a daily binary call option on the Dow Jones Industrial Average with an expiration time and a strike price of 16,640.00. At the end of the trading day, the option expires and the expiration price is 16,644.40. The expiry price is higher than the original price, meaning that your trade was successful and you will receive a payout.
This refers to the time and date at which the option you have purchased will expire. When the option has expired, at this specific time and date, the trader will gauge if the expiry price has gone up or down from the original strike price.
Forex Binary Options
Forex binary options refer to an option whose underlying asset is that of a currency pair. In forex binary options, the value of the currency pair is impacted by the interrelationship between the two currencies. These can include such currency pairs as the EUR/USD, USD/JPY, GBP/USD and many more. In binary options currency pairs, the value of the first currency is determined compared to the value of the second.
Index Binary Options
Index binary options refer to an option whose underlying asset is that of a market index. A market index is calculated by using a weighted average of its stock components. These can include indices such as the FTSE 100, Dow Jones Industrial Average, NADSAQ and many more.
In the Money
When a trade expires in the money, it means that your prediction was correct and you will make a profit on the trade. An option is in the money if you place a call option and the options’ price expires above the target price. If a put option is executed then you are in the money when the options’ price expires below the strike price.
Options on Commodities
A commodity is usually a physical item like gold, silver and oil and price movements of these commodities are largely determined by economic factors. When executing options on commodities, you are predicting if the value of the commodity will rise or fall in value by the expiry time.
Out of the Money
This term refers to the point when a purchased option has been unscucesful. An option is out-of-the-money if you place a call option and the options price expires below the strike price. If a put option is executed, then you are out-of-the-money when the options price expires above the strike price.
A stock refers to the price of shares in a specific company which are traded on the stock markets. Examples of stocks include shares of Apple, Google, Deutsche Bank, BP and Sony.
The strike price refers to the price of the underlying asset at the time when a trader purchases the option. When the option expires, the new price of the underlying asset at the time of expiry is compared to the strike price to determine whether the option has gained value or lost value. This comparison determines if a trade has expired in the money, at the money or out of the money.
Underlying Asset Categories
There are four primary asset categories in binary options trading. These underlying asset categories are stocks, commodities, indices and currency pairs.
This term refers to the time when a trader is ready to take the money he’s earned out of his trading account. There are a range of different withdrawal methods that are offered by the Ultimate4Trading platform.