The Great Binary Options Glossary by Bots.com

The Great Binary Options Glossary

BinaryOptionsThatSuck.com team is proud to present the Great Glossary of Binary Options, with all the different Binary Options, Financial and Fundamental Terms, including short explanation for newbies.

 

 

Binary Options Terms

Asset: Underlying instrument used to determine the value of a certain option. The main four classes of assets are currencies, commodities, indices and stocks. In financial terms, an asset is any tangible or intangible product capable of being owned and that can be used to produce additional economic value.

 

At The Money: An option is described as being “At The Money” when its strike price is the same as the current market price of the underlying asset.

 

BOT/Autotrader – Computer programs used to automate Binary Options trading. In some ways they are similar to Expert Advisors but often the performance of BOTS/Autotraders is exaggerated through marketing and get-rich-quick promises. Once turned on, the BOT/Autotrader makes trading decisions and opens trades based on the parameters chosen by the user or by the programmer. For a deeper understanding, we recommend reading Binary Options Robots – Is it a Scam or Should I choose the Robot and also The Year of the (FAKE) Signal Provider/Autotrader/Bot!

 

Binary Options: An all – or – nothing type of option that pays a predefined amount if the price of the underlying asset meets the investor’s prediction at the time of expiry. Otherwise it will expire worthless and the investor will lose the whole invested amount.

 

Boundary options: A type binary option where the trader must decide if price will be inside or outside a predefined trading range. Also known as IN/OUT or Range

 

Call Option: One of the two types of Binary Options. It reflects a trader’s belief that the value of an underlying asset will be higher at expiry time than it was when the option was purchased.

 

Chart: Graphic representation of a certain asset’s price movement.

 

Commodity: A generic term used for any marketable good produced to satisfy certain needs and can be traded through exchanges.

 

Crude Oil: A liquid fossil fuel extracted through drilling and known as one of the most traded commodities

 

Currency Pair: Two currencies valued against each other constitute a currency pair

 

Day trade: A trade that is opened and closed within the same day

 

Demo Trading: A way of trading without risk, using virtual money. Some brokers allow their clients to open these virtual money accounts (Demo) so they can test the broker’s platform as well as the profitability of the strategy they are going to use when investing real money. Demo Trading is mostly used as a way to train and test, before putting real money on the line. Most Demo accounts are free but some brokers require you to deposit first; for more details on the matter, read about Free Binary Options Demo Accounts.

 

Digital Option: A different term used for Binary Options

 

Downtrend: A general decline in the price of an asset, also characterized by lower lows and lower highs

 

Early Closure: The ability to close an open trade before the expiry time.

 

Expert Advisor: a computer program that allows the automation of trading processes (Buy, Sell, Close, etc.). The terminology Expert Advisor (or Expert, or EA) refers to programs coded for the trading platform Meta Trader 4. Other platforms use different coding languages so these automation programs have a different name but are generally known as EAs. Recommended reading: Trading for Dummies? Use MetaTrader Expert Advisors to Test your Strategy and Strategy Tester – Get in Shape with Your Personal Trading Gym.

 

Expiration Date/Time: The time at which an option expires and the outcome is known.

 

Expiration Price: The price of the underlying asset when the option expires

 

Holder: A trader that has an open position in the market. If a person purchases a Call or Put option, he/she is the “holder” of that position until expiry or any form of early closure.

 

In the Money: The term describes an Option that is currently showing a profit. For a Call Option to be In The Money, the current price needs to be above the strike price. Vice versa is valid for a Put Option.

 

Index (stock market index): Method of calculating the average value (differently weighted) of the stock price of different companies contained in the index.

 

Instrument: Different term for “Asset”

 

No Touch Binary Option: A type of Binary Option that brings a profit to the trader if price does not touch a certain predefined level during the option’s lifetime.

 

Option Period: Often referred to as an option’s lifetime, the period between the purchasing of the option and the expiry time.

 

Out Of The Money: The term describes an Option that is currently showing a loss. For a Call Option to be Out Of The Money, the current price needs to be below the strike price. Vice versa is valid for a Put Option.

 

Paper Trading – Very similar to Demo Trading, but this method doesn’t include actual trading. Instead, the user notes down all the details of a trade he/she would take and then waits for expiry (if the paper trade is taken in real time). Paper trading can be done on historical charts – the user checks for places where his/her strategy would signal a trade and then checks to see if the trade would expire ITM or OTM. Further details on paper trading here: Binary Options Paper Trading before Real Trading

 

Payout: The profit realized if a Binary Option expires In The Money

 

Pip: The smallest amount by which a Forex quote can move, generally the fourth decimal: 0.0001. Lately we see more and more brokers that offer five decimal quotes.

 

Put Option: One of the two types of Binary Options. It reflects a trader’s belief that the value of an underlying asset will be lower at expiry time than it was when the option was purchased.

 

Rollover: An instrument offered by some Binary Options brokers that allows the trader to extend the expiry time of an option

 

Share: A single unit of ownership in an organization, mutual fund or company. The total company capital is divided into shares.

 

Signal – 1) When all the rules of the strategy you are using line up together, a signal is generated. This signal can be visually identified by looking at the charts and checking if all rules are met or a sound alert can be generated if the user has coding skills or if the indicators used already have built-in alerts. Example: the strategy only has one rule – MA 50 must cross MA 100. When the cross occurs, you’ve just received a signal from your strategy.

 

Signal – 2) A signal can be generated by a Signal Provider Service, which can he a human with knowledge of the markets or a binary options computer program (similar to Expert Advisor), or a BOT/Autotrader. Usually these signals are received via SMS, email, Skype or other messaging services. For further information on such signals, we recommend reading our Introduction to Binary Options Signals, as well as Signal Service Providers – Know how to avoid Scams and Resentments.

 

Stock: Capital invested into a business. The stock of a company is divided into Shares.

 

Strategy – A clear set of rules that when fulfilled, offer the user a signal to trade. It is a fixed plan that can be back-tested and forward-tested and has to contain clear entry/exit points and money management rules. For a full list of strategies published on our website, visit the Binary Options Strategies Page and choose between Most Popular, Newest, Top Commented or Most Liked.

 

Strike price: The price at which the holder of the option can purchase (call) or sell (put) the underlying asset.

 

Touch Binary Option: A type of Binary Option that brings a profit to the trader if price touches a certain predefined level just one time during the option’s lifetime.

 

Underlying asset: The instrument/product upon which the Binary Option’s calculation is based

 

UP/DOWN Binary Option: One of the most common types of Options, where the trader chooses UP if he/she thinks that price at expiry time will be higher than the opening price or DOWN if he/she thinks price will be lower at expiry time.

 

60 Seconds Binary Options: They are UP/DOWN Binary Options with a 60 second expiration time.

 

Financial Terms

American Style Option: A type of option that can be exercised at any time prior to expiration. It is part of the wider category of Options called “Vanilla Options”

 

AMEX: The American Stock Exchange. This is one of the oldest US stock exchanges. The AMEX also lists some binary options according to CFTC rules and has quite a few more assets on the list. These options are also available through supporting brokers but there is a catch. These options, like the CBOE options, are intended as a hedging tool for large account holders and margin traders. It usually requires a sizable margin account to trade them.

 

Ask Price: It’s the price a seller asks when he wants to sell an option or stock.

 

Bearish: A commonly used term in the financial market describing the opinion that an asset (or a certain market) will decline in price. Also used for describing investor sentiment, referring to downward movement.

 

Bid Price: The price a buyer is willing to pay for a certain asset

 

Broker (or Brokerage firm): A financial institution that facilitates the buying and selling of financial instruments in the financial market

 

Bullish: A commonly used term in the financial market describing the opinion that an asset (or a certain market) will rise in price. Also used for describing investor sentiment, referring to upward movement.

 

ByRDs: Binary Return Derivative Spreads. This is the name of AMEX/NYSE binary options. These are a CFTC approved exchange listed binary option. They are only available through supporting brokers and will most often require a margin account to trade.

 

Cable: Trader slang referring to the GBP/USD exchange rate

 

CBOE: The Chicago Board of Options Exchange. This is a US exchange where index, future, commodity and equity options are listed. This is also one place where US, CFTC regulated binary options can be found. The CBOE has two assets, the SPX and the VIX, and allows them to be traded through supporting brokers.

 

CBOT: Chicago Board Of Trade

 

Central Bank: A monetary authority, financial institution that manages a country’s monetary supply and interest rates. It also oversees the entire commercial banking system of the respective country.

 

CFTC: The Commodities and Futures Trading Commission. This is the regulatory body that overseas the trading of commodities, derivatives and futures including binary options. The CFTC as it is known requires binary options to be traded in a way much different than its comparable organizations in other countries and is the root of why US traders are denied access to off shore brokers. The CFTC says that all options, derivatives and futures must be listed on an exchange where buyers and sellers are matched.

 

CME: Chicago Mercantile Exchange

 

COMEX: Commodity Exchange, Inc. A division of NYMEX

 

Cover: An action taken for lowering the risk exposure, usually by closing an existing position or opening a counter position.

 

Current price: The price of an asset reported in real time

 

Currency Pair: Two currencies valued against each other constitute a currency pair

 

CySEC – The Cyprus Securities And Exchange Commission. This is the regulatory body of Cypress and the source of binary options regulation in the EU. CySEC allows for a much different kind of trading than the CFTC and currently has several dozen brokers under its umbrella. These brokers are licensed, legal and respectable brokers in their sphere of influence, the European Union, but illegal for US traders. This is why that the fringe brokers who make the move to regulation have to drop their US clients.

 

Day trade: A trade that is opened and closed within the same day

 

Depreciation: A decrease in the value of a certain asset

 

Downtrend: A general decline in the price of an asset, also characterized by lower lows and lower highs

 

Economic Indicator: A statistic that reflects economic growth, stability or decline. Widely known Economic Indicators are Gross Domestic Product, Unemployment change, Retail Sales, Home Sales

 

Equity: The net assets of an entity. In trading, it means the balance of the trader’s account without counting the funds involved in open trades. EX: if the total account balance is $1,000, but there is an open trade with an invested amount of $100, the equity is $900

 

EUREX: European Exchange

 

European Central Bank (ECB): European Union’s Central Bank (see Central Bank)

 

European Style Option: A type of option that can be exercised only at the time of expiration. It is part of the wider category of Options called “Vanilla Options”

 

Exotic Options: Types of options that use more complex calculation methods than common options.

 

Federal Reserve (FED): The central banking system of the United States

 

FINEX: Financial Instruments Exchange, the New York exchange for currency derivatives

 

Forex (Foreign Exchange): A form of exchange for trading international currencies. It is a decentralized market and it involves simultaneously selling a currency and buying the other one in the pair.

 

FTSE:  United Kingdom’s most well known stock index

 

Hedge (hedge trade): A trade opened with the purpose of limiting another one’s loss or protecting the profits

 

HKFE: Hong Kong Futures Exchange

 

Holder: A trader that has an open position in the market. If a person purchases a Call or Put option, he/she is the “holder” of that position until expiry or any form of early closure.

 

Index (stock market index): Method of calculating the average value (differently weighted) of the stock price of different companies contained in the index.

 

Instrument: Different term for “Asset”

 

LIFFE: London International Financial Futures Exchange

 

Liquid Market: A market characterized by large trading volumes.

 

LSE: London Stock Exchange

 

Margin: The minimum equity needed as collateral to open a position.

 

Market Quote: A current price (quote) for an asset

 

NADEX: The North American Derivatives Exchange. NADEX is the American/North American arm of IG Markets. IG Markets is an international provider of CFD, forex and binary trading. NADEX is an exchange offering US CFTC approved binary options for retail traders. This is the only serious US binary options exchange and the only one that retail traders can join directly. This means no intermediary broker and direct access to the marketplace. Account minimum is very low, does not have any margin requirements and the asset list is comprehensive.

 

Neutral: It refers to the belief of a trader that an asset price will not move up or down significantly. It can also express a lack of opinion regarding a certain instrument.

 

NYMEX: New York Mercantile Exchange

 

NYSE: The New York Stock Exchange. This is another of the original stock exchanges to exist in the US. The NYSE is the biggest and most prominent of all the exchanges and has over the years swallowed up its smaller competitors. One such is the AMEX.

 

Over – The – Counter (trading): Refers to trading done directly between two parties, without the supervision of an exchange. Binary Options were available for OTC trading before 2008.

 

Resistance: A technical analysis term used for describing a level where rising prices were rejected several times into lower territory. Future prices are likely to respond to those levels.

 

SEC: The Securities And Exchange Commission. This is the US regulatory body that overseas how securities are traded and where they are traded. They outline the method in which traders interact and set down the rules for how exchanges operate. The biggest thing to take note of is that SEC exchanges match buyers and sellers together, they provide a market place and do not engage in market making. The market making is left up to us, the traders who meet on the exchange. There are a number of such exchanges as listed below. The SEC, together with the CFTC, make it illegal for unlicensed off shore brokers to “offer” binary options to US citizens. Many off shore brokers skirt this legal issue by not offering to US citizens, but allowing them to trade if they show up on their own.

 

Share: A single unit of ownership in an organization, mutual fund or company. The total company capital is divided into shares.

 

Stock: Capital invested into a business. The stock of a company is divided into Shares.

 

Support: A technical analysis term used for describing a level where falling prices were rejected several times into higher territory. Future prices are likely to respond to those levels.

 

Technical Analysis: A method of analyzing past data in order to observe price behavior and certain patterns that can be used to predict future price movement. It also refers to conducting analysis with the use of technical indicators such as MACD, RSI, Stochastic, Fibonacci retracement levels, etc.

 

 

Fundamental Terms

Bearish: A commonly used term in the financial market describing the opinion that an asset (or a certain market) will decline in price. Also used for describing investor sentiment, referring to downward movement.

 

Bullish: A commonly used term in the financial market describing the opinion that an asset (or a certain market) will rise in price. Also used for describing investor sentiment, referring to upward movement.

 

CPI: Consumer Price Index – Index that measures the changes in prices paid by consumers for goods and services

 

Depreciation: A decrease in the value of a certain asset

 

Fundamental analysis: A form of market analysis that includes gauging the overall health of a country’s economy based on all important economic indicators (GDP, production, interest rates, sales, unemployment numbers, etc.).

 

GDP: Gross Domestic Product – All services and goods produced by a country’s economy

 

Neutral: It refers to the belief of a trader that an asset price will not move up or down significantly. It can also express a lack of opinion regarding a certain instrument.

 

NFP: Non-Farm Payrolls – change in the number of employed people, excluding the farming sector

 

Unemployment rate: Total percentage of unemployed (but apt for work) people looking for jobs

 

PPI: Producer Price Index – Index that measures changes in prices paid by manufacturers for goods and materials

 

Retail Sales (as an economic indicator): Total change in the sales value on a retail level

 

 

Many Thanks to Bogdan G. with his help on the Glossary.

 

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