Glossary of Terms Related to Binary Options Trading
ATM – “At-The-Money”
This simply means the market price of the underlying asset is currently trading right at the target, or “strike” price.
The strict definition of a binary option would be a type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money. However some of the best binary options brokers DO pay some kind of small return on losing trades.
Binary Options Broker
Here at Binary Options Reviews we usually use the term to refer to brokers dealing mostly or entirely with binary options. Their specialization. Some forex and other brokers also offer some limited binary options trading but if you want the full lineup go with a dedicated binary options broker.
See In/Out Boundary
CBOE (Chicago Board of Options Exchange)
The worlds largest options exchange. An incredible resource for trustworthy and up-to-date information about options and how you can use them properly in your investment activities.
The ‘Close Now’ option offered by some binary options brokers allows traders to close out a binary options trade before expiration. This extra flexibility means a trader can close out winning positions to safely pocket profit, or losing positions to minimize losses.
Digital options are synonymous with binary options. A fixed return, ”all-or-nothing” option contract. The term “digital options” is more frequently used in Euorope and is only rarely used by US writers or traders. When looking for binary options information it can be helpful to try substituting digital options in to your serch terms.
A special service offered by a few select brokers which allows a trader to duplicate any open trade they have with the click of a single button. This is a great option to have in volatile, fast moving markets.
Some of the best binary options brokers offer Early closure. This refers to the ability of a trader to close a position any time it hits ITM to lock in profits.
Sometimes meant strictly in the sense of arbitraging price inefficiencies before and after corporate events. In its broader sense (used here at B.O.Reviews) it simply means basing your analysis and investment strategy on expected event outcomes. The event can be anything from economic reports to corporate mergers to hurricane damage. With everything in-between. Traditionally largely restricted to institution investors and investment banks due to the perceived (and in many cases actual) complexity involved in doing a proper analysis.
The expiry time is the time and date an option expires. Some of the best binary options brokers offer early exercise of their options so you can lock in profits.
FINRA (Financial Industry Regulatory Authority)
The Financial Industry Regulatory Authority is the largest independent regulator for all securities firms doing business in the United States and is dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry.
A High/Low binary option allows a trader to simply decide whether the underlying asset will be above or below the target price when the expiry time of the option is reached. High, or Low.
The simplest binary options contract of them all.
In/Out Boundary Options
An In/Out Boundary binary options contract allows the customer to decide whether the underlying asset will be located inside or outside a specified range (formed by a lower and upper target price) at the time of expiry. Some of the best brokers also allow early exercise of these contracts so that any time you are in the money, you can get out of the trade at will and safely take your profit.
ITM – “In-The-Money”
In binary options trading this is simply when your options contract has met its criteria for payout.
OIC (Options Industry Council)
An authority resource on all things options. Great educational resources as well as clear and honest assessments of the risks involved in trading options of any kind.
OTM – “Out-of-The-Money”
In binary options trading this is simply when your options contract has not met its criteria for payout.
Binary Pair Options are simple trading instruments that allow you to make trades based only on the relative performance of two assets. For example: Which will do better over the next day, Gold or Silver?
Range Accumulation Binary Options
A series of binary options with each option covering a short period, typically one day or one week. The payoff of the range accumulation option is the sum of the payoffs of the component binary options.
The amount refunded to the trader after expiry of the option if that option expires OTM. Many times this is nothing. It depends on the contract and broker.
The amount returned to the investor after expiry of the option. Always expressed as a percentage of the trade size. Example: $100 trade with a payout structure of 83% for “in-the-money (ITM) and 0% for “out-of-the-money” (OTM).
This option offered by some binary options brokers allows a trader to put off expiration of an option contract to give it extra time to reach ITM. Useful when a trade has gone against you but you believe that it simply needs a little more time to become a profitable trade. Most brokers require that you increase your trade size to activate this trade modification.
SEC (Securities and Exchange Commission)
The United States SEC is the government agency responsible for implementing and enforcing financial markets regulations for all firms doing business in the US.
The price at which a binary options broker is willing to “sell” an option based on the contract specifications (often called the “strike” or purchase price of an option).
A trader can buy at either higher or lower levels than this going market rate based on their directional view. And, of course, profit if correct.
Touch/No Touch Options
A Touch/No Touch binary option instrument pays a fixed return if the underlying asset reaches the target price at any time during the lifetime of the option. If the option reach the target price at any time during the lifetime of the option then the option automatically and immediately expires with a profit. For a “No Touch” option it would pay off if the price never touches that specified price during the life of the option.
The graphic interface a trader uses to reach the binary options market. Most good binary options brokers include tools and interactive charting for the analysis of trading instruments.
The asset on which the binary options contract is based.
i.e. Gold, APPL, S&P500, etc.
Go To Top | Home Page | Contact Us