One of the main factors which helps to contribute to the popularity of binary options trading is the fact that there is very little, to no learning curve. Because of the way they are structured, a binary options trader essentially only has to determine if prices are going to rise or drop when trading. Unlike traditional financial instruments where the quantum of price movements plays a part in determining the final payout amount, the payouts for binary options are predetermined and fixed. With binary options, as long as the price reaches the strike price by the expiration time, the trader will receive a fixed payout regardless of whether prices move by 1 pip or 10 pips.
When trading binary options, you will often come across specific terms or phrases that may be unfamiliar to you. It is important that you understand what these terms and phrases mean, in order to avoid any confusion or misunderstanding. Below, we have compiled a list of frequently used terms and phrases so you can hit the ground running.
- Asset or Underlying Asset
This term is used to refer to the type of item that is being traded and from which the price of the binary option is derived. Examples of assets or underlying assets include the EUR/USD currency pairs, Crude oil, Gold, the Dow Jones Industrial Index and Apple Inc stocks.
- Bear Market
A term used to describe a market condition where prices are generally falling
- Bull Market
A term used to describe a market condition where prices are generally on the uptrend
- Call Option
An option that is purchased when a trader has determined that the price will increase by the expiration period
- Current or Market Price
The price of an asset that is being reported in real time by a data feed provider such as Thomson Reuters
- Early Closure
A trading situation where a binary options trader is able to close his market position before the expiration of the option
- Expiration Time
Used to describe the time at which a binary option will expire. Upon reaching its expiration time, the binary option contract will no longer be traded and becomes void.
- High/Low Options
Often used interchangeably with Call/Put to describe binary options which are being traded on the premise that prices will end up higher or lower than the strike price upon expiration of the option.
- Financial Security/Instrument
This term is often used interchangeably with the term “Asset” to describe currency pairs, commodities, indices or stocks.
- In the Money
Describe a trading situation where a trade has resulted in a gain and netted the trader a profit
- One Touch Option
One touch options are binary options which requires the price of the underlying asset to ‘touch’ the strike price before the option expires
- Out of the Money
Used to describe a trading scenario where the trader has made a loss on his investment
- Put Option
An option that is purchased when a trader has determined that the price will fall by the expiration period
While technically binary options are all or nothing options where a trader will either receive a fixed predetermined return or loses his entire investment amount, most binary options brokers do offer a small refund or rebate when a trader closes out of the money.
This refers to the fixed predetermined payout which a trader will receive when his trade closes in the money
- Strike Price/Target Price
In binary options trading, the terms strike price and target price are often used interchangeably and refers to the price that an underlying asset must attain by the time option expires.
How to Place a Trade
To make a binary option trade with the anyoption trading platform, simply follow the steps that we have outlined below:
Step1: Choosing an asset –