Binary Options Terminology


Binary OptionsIf you have decided that it is time to start trading in binary options then it is essential that you familiarize yourself with the most important concepts and terms of this industry. Without these you will be unable to effectively start trading or build a successful investment career. The most important concept is that of binary options. Put as simply as possible this is the option to purchase a fixed term contract which will end with a fixed rate of return; providing your prediction is correct. If it is not you will lose all the funds you placed on the contract.

The Terms

One of the terms you will hear a lot is ‘asset’; this is simply the item you are trading on. It can be a share, commodity, currency pair or an index. The term ‘current rate’ will often be associated with the asset you wish to trade in and this reflects the current price of it.

Before any trade can be made you will need the services of a broker; this is the middle person who offers you the contracts and deals with the financial markets.

You will also find that every trade has a variety of options associated with it. The first is the time it will expire; also known as the expiration time. You may also hear the word ‘call’ which refers to an option where the price is likely to increase. A ‘put’ is for process heading downward.

At the end of every binary options trade you will either have been successful, which is known as ‘being in the money’; or you will have been unsuccessful and will be ‘out of the money’. Success will equal the return of your capital and an agreed rate of return whilst an unsuccessful trade means you lose your initial investment.

The rate of return is the percentage profit you make; this may also be known as the return on investment. It will be advised before you place any trade. Binary options generally have high rates of return, as much as ninety percent. This means a successful $100 trade could generate a profit of $90!

There are two types of analysis and it is important to understand what both are and how to use them; you will need both to trade successfully. Studying the wider economy and political or even geographical issues is essential and comes under the term ‘fundamental’. There are many outside stimuli which can affect the price of the asset and these must be considered.

Technical is the other side of the equation. This is the analysis of binary options through the use of price charts and can be an extremely accurate way of predicting price direction.

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