Glossary of Binary Options Terms
When first learning about trading binary options, it is easy to be confused by the terminology that is sometimes employed. Like most specific areas of finance, there are terms found in regards to binary options that are not commonly used anywhere else. To help those who are trying to learn their way around the world of binary options trading, here is a list of some of the more common pieces of binary jargon and what they mean.
Binary Option: A type of trade that involves predicting whether the value of a given asset will go up or down. This type of trade, which has only two possible outcomes, is the basis of binary trading.
Call Option: A call option is essentially a prediction that the value of a particular asset will go up. When a trader believes that the value of an asset will increase, a call option is placed that will profit the trader if and only if the value of the asset does, in fact, increase.
Put Option: A put option is the exact opposite of a call option. It is the choice that is selected in binary options trading if the trader believes that the value of the asset in question is likely to decrease rather than increase.
Expiry Time: The expiry time of a binary option trade is the amount of time that will pass before the trade is completed and profit or loss is determined. Different brokers will have different options available for expiry times, but as a general rule they will range between five minutes and 24 hours. The expiry time is selected by the trader at the time that a trade is placed.
Open Position: Any binary options trade that has not yet reached its expiry time. An open position is a trade that is active.
Broker: A binary options broker is any company or website that provides a platform on which binary options trades may be executed. Different brokers will offer different platforms and options for traders.
In the Money: A binary options trade that finishes in the money is one that, at the time of expiry, has moved according to the trader’s prediction. When an option finishes in the money, a trader makes a return on his or her investment.
Out of the Money: The opposite of a trade that finishes in the money. A trade which finishes out of the money is one that moves against the prediction made by the trader by the time of expiry. When a trade finishes out of the money, the trader will lose part or all of the money that he or she has invested.
Turbo Binary Options: Turbo binary options, sometimes referred to simply as turbo options, are binary options with extremely short expiry times. These options will have an expiry time ranging from 60 seconds to five minutes. They are preferred by some binary traders as a way to execute more trades in a given space of time, but are also more difficult to predict according to the analysis of larger trends.
Underlying Asset: An underlying asset is any individual asset that may be traded as a binary option. Underlying assets fall under different asset categories such as commodities, stocks, indices and Forex. For example, the AUD/JPY currency pair is an underlying asset of the Forex market.
Social Trading: Social trading is a type of trading that relies on the wisdom of the crowd to make trading decisions. It is not unique to binary options, but is widely used by some binary options brokers. Social trading also commonly offers traders the option of automatically copying the trades of already successful individual traders.
Hedging: A trading strategy that involves playing off two opposing positions on a binary trade that are calculated to ensure a profit in the case of either outcome. This strategy is used to reduce risk and to turn small profits on trades that otherwise would result in a complete loss.
One Touch Option: Like turbo options, one touch options are a specialized type of binary options. One touch options require the value of an asset to reach a selected point at least once before the hour of expiry. So long as this occurs, the trade finishes in the money. Much like turbo options, not all binary brokers offer one touch options to their traders.
These are the major and common terms that are used in binary options trading. There are, of course,others which are used less frequently, but this list will help those new to the binary options world get a grasp of what is being said and taught to them. If you are looking for a binary options brokers, then we advice you take look at our list of regulated binary options brokers.