Binary Options Terminology

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Binary Options Beginner’s Guide

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Below is a list of commonly used binary options trading terms. You have to learn the terminology of binary options in order to become a successful trader in this field.

Asset-Or-Nothing

This option enables investors to guess the direction of movement (above or below) of an asset. The above or below options give the investor a strike price in which he will speculate as to whether the market will be above or below that level (strike price) at a specific date.

Barriers Option

A barrier option, which is also known as a one-touch option is an option where the payoff is triggered by the price of the underlying asset hitting a specific level. most of the binary option platforms offers a barrier option trading.

Binary Option Underlying Asset

Underlying Asset: This is the stock, commodity, currency pair, or index on which you are basing your option. This is the basis for the entire binary option.

Binary Options

Binary options, also identified as digital options are a form of investment in which the yield is fixed and pre-determined. The yield is paid when the option expires. The pre-set yield is paid out when the option expires “in-the-money”.

Binary Options Payout

Payout: the amount of money one receives when an asset expires ‘in the money’ – usually between 65-85% when trading binary options Binary options payout

Binary Options Put Option

Put Option: This is the binary option that will expire “in the money” when the underlying asset is below the strike price at expiration. It will expire “out of the money” when the underlying asset is above the strike price at expiration. binary option put options.

Cash-Or-Nothing

This option is the most common term of Binary Options. This type of trade enables investors to guess the direction of movement (above or below) of a financial good. The above or below options give the investor a strike price in which he will speculate as to whether the market will be above or below that level (strike price) or a specific time. The investor estimates whether the price of a specific good will rise or fall, without paying a significant premium.

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Cash-Or-Nothing Binary Options

Cash-or-nothing binary options are the most familiar form of binary options. In this type, a strike price is determined (generally the price of the asset at the time the option is purchased). A contract is then bought for either a Call or a Put, depending on whether the investor thinks the asset will finish above or below the strike price. If the investor was correct when the contract expires, they earn a fixed return, generally between 170% and 200% of the stake. If the investor was incorrect, they lose their stake, or in some cases are given 10% to 15% back. cash or nothing binary options trading systems are shown here in the guide and you can try it for free in some of the trading platforms and check demos.

Close Now

Close Now: enables traders to buy an option before the time of expiration. This could be helpful if you believe that your option is not performing as you expected and the asset you chose is not moving in the direction you predicted. For example, if you bought a one hour Call option on gold, and after 50 minutes you see that gold is steadily increasing, you could buy the option before the time of expiration to insure that you’ll make a profit. On the other hand, if the price of gold started to decrease, you could buy out the option before the time of expiration to minimize your risk.

Digital Options

Digital options: also identified as Binary options are a form of investment in which the yield is fixed and pre-determined. The pre-set yield is paid out when the option expires “in-the-money“. The yield is paid when the option expires.

Double-One-Touch and Double No-Touch

The Options of a double touch and touch dual are similar to the One-Touch and No-Touch options, but instead of one level to be the determined price, the investor makes a profit if the property touches the two price levels specified in the course of trading of the options until its expiration. The “double no touch” requires that the property will not touch any of the specified price levels at any time before its expiration options trading predefined time to make the prescribed amount.

Exchangeability

Exchangeability: binary option traders can trade on multiple time frames as the binary options are issued round the clock.

Warrior Trading Blog

Over recent years traders have started hearing about a new trading product, but there’s a lot of questions and concerns about what they are and how they work. Binary Options are a type of derivative that are considered an “all-or-nothing” asset and is comparable to placing a bet on a sports game.

When you purchase a Binary Option you either make a predetermined amount based on how far out-of-the-money your option is or you lose your entire investment at the time of expiration. There is no in between and is why they are called “binary”, because there is only two outcomes.

Binary Options are similar to normal options in that they are expiring assets but they are very different in just about every other aspect. You cannot buy one and sell it back at a higher price if it trades in your favor.

You have to wait till the expiration to collect your winnings or realize your loss. Traders have found them attractive due to their simplicity but given their lack of regulation by the Securities and Exchange Commission (SEC) they tend to carry more risk and may not be suitable for everyone.

How They Work

When you buy a Binary Option you must predict where a stock, ETF or index is heading within a specified time frame.

So, for example, if the SPY is trading at $225 and you think it will close the day above $226 you would buy the binary call option at that strike and if the SPY closes above $226 then you will receive your winnings. However, if it does not finish above $226 then you will lose your entire investment. It’s as simple as that!

Binary Option Pros & Cons

Binary Options have both good and bad qualities about them. What I really like about them is that they take the emotion out of trading. You buy it and wait till expiration and either collect your winnings or accept your losses.

I also like how simple they are to trade and that you’re risk is limited to only the amount you invest. If you have ever traded normal options then you will have no problem trading Binary Options.

However, what I don’t like about Binary Options is you can’t cut losses if the trade is going against you and you’re susceptible to whatever news comes out during your time till expiration.

I also don’t like the fact that it is not accepted by all brokers or exchanges or regulated like normal options making them a riskier product. However, they may become a mainstream trading product one day so familiarizing yourself with them may be a good idea.

Warrior Trading Pro Tip

Binary Options are generally unregulated and are more prone to fraud. Unless you completely understand and accept the risks involved then I would recommend sticking to regular options or stocks.

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catherine savage

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Available research data suggests that most day traders are NOT profitable.

In a research paper published in 2020 titled “Do Day Traders Rationally Learn About Their Ability?”, professors from the University of California studied 3.7 billion trades from the Taiwan Stock Exchange between 1992-2006 and found that only 9.81% of day trading volume was generated by predictably profitable traders and that these predictably profitable traders constitute less than 3% of all day traders on an average day.

In a 2005 article published in the Journal of Applied Finance titled “The Profitability of Active Stock Traders” professors at the University of Oxford and the University College Dublin found that out of 1,146 brokerage accounts day trading the U.S. markets between March 8, 2000 and June 13, 2000, only 50% were profitable with an average net profit of $16,619.

In a 2003 article published in the Financial Analysts Journal titled “The Profitability of Day Traders”, professors at the University of Texas found that out of 334 brokerage accounts day trading the U.S. markets between February 1998 and October 1999, only 35% were profitable and only 14% generated profits in excess of than $10,000.

The range of results in these three studies exemplify the challenge of determining a definitive success rate for day traders. At a minimum, these studies indicate at least 50% of aspiring day traders will not be profitable. This reiterates that consistently making money trading stocks is not easy. Day Trading is a high risk activity and can result in the loss of your entire investment. Any trade or investment is at your own risk.

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Citations for Disclaimer

Barber, Brad & Lee, Yong-Ill & Liu, Yu-Jane & Odean, Terrance. (2020). Do Day Traders Rationally Learn About Their Ability?. SSRN Electronic Journal. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535636

Garvey, Ryan and Murphy, Anthony, The Profitability of Active Stock Traders. Journal of Applied Finance , Vol. 15, No. 2, Fall/Winter 2005. Available at SSRN: https://ssrn.com/abstract=908615

Douglas J. Jordan & J. David Diltz (2003) The Profitability of Day Traders, Financial Analysts Journal, 59:6, 85-94, DOI: https://www.tandfonline.com/doi/abs/10.2469/faj.v59.n6.2578

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Binary Options Terminology

Our binary option trading glossary is the quick and easy way for traders from Russia to learn about binary option terminology and increase your knowledge and confidence. The following glossary lists the most common binary option terms used by Russians.

At the money: Used when the market price of the asset is currently trading at or has closed at the exact target price.

Binary Option: A specific type of financial instrument that offers a fixed rate of return that is predetermined before the investment is made.

Boundary Instrument: A type of binary option in which the trader decides whether the market price at the time of expiry will be within a price range or outside of that set range.

Call: Used when the trader believes the market will rise for that binary option.

Demo Account: A fictitious account used to trade the virtual funds.

Digital Option: Another name for a binary option.

Early Closure: Some platforms allow a trader to close a position before the expiry time.

Expiry Level: This is the level of the asset at the time of the asset’s expiry and which the profit or loss will be based upon.

Expiry Time: The date and time at which an option expires.

High Option: A binary option type in which the trader believes the market price of an asset will expire above the current market price.

High/Low Instrument: A binary option in which a trader can decide if the asset’s market price will expire higher or lower than the current market price.

Inbound Option: One possibility of the boundary option. The trader decides if the market price will expire inside the predetermined price range.

Investment Amount: The amount of capital invested in an individual binary option.

In the Money (or ITM): This term means that the market price of the asset is currently trading at the target price or has closed and is profitable.

Long Term: This refers to long term expiry trades, trades that expire greater than 5 minutes such as daily, weekly, monthly.

Low Option: A binary option in which the trader believes the market price of an asset will expire below the current market price.

Market Price : The current price of the asset based on the providers data.

Maximum Position: The maximum investment stake per single trade for that binary option.

Minimum Deposit: The minimum investment required to activate a live binary option account.

Minimum Position: The minimum investment stake to open a trade for that binary option.

No Touch Option: A binary option trade in which the trader decides if the market price will not reach a predetermined price through the life of the option.

One Touch Instrument: A binary option trade in which the trader decides if the market price will reach a predetermined price through the life of the option.

Out of the Money: This term means that the market price of the asset is not currently trading at the target or has closed and is not profitable.

Outbound Option: One possibility of the boundary option, the trader decides if the market price will expire outside the predetermined price range.

Pairs Trading: A term used when the trader decides that one instrument will outperform another (e.g. Google will outperform Apple).

Put: Used when the trader believes the market will fall for that binary option.

Refund: This is the amount of money refunded to the trader if he/she has invested in an option that accounts for a refund if the option expires “Out of the Money”.

Return: The return is the percentage of the original investment that the trader will receive if the investment is profitable.

Short Term: This refers to short term expiry trades such as 60 seconds, 1 minute, 2 minute and 5 minute.

Strike Price: This refers to the market price of the asset as determined by the provider at the time of entry by the trader.

Target Price: Also known as the market price, is the current price of the asset as determined by the provide.

Time Remaining: The time that remains until the expiry of the binary option.

Touch Option: A Touch Option is a binary option that will expire in the money if the market price at any time during the life of the option touches a predetermined level.

Traded Amount: The amount of capital invested in an individual binary option.

Underlying Asset: The asset itself in which the trader is taking a binary option over.

Underlying Asset Types: Stocks (e.g. Apple, Google, Facebook, Twitter, BP, Vodafone, Pairs Trading)

Commodities (e.g. Gold, Silver, Oil, Coffee, Sugar, Copper)

Indices (e.g. S&P 500, NASDAQ, NIKKEI 225, FTSE 100, DAX, CAC 30,)

Currencies / Forex (e.g. EUR/USD, GBP/USD, USD/JPY, AUD/USD)

Exotics (e.g. Bitcoin)

We hope that you found this helpful, however if you still have any questions please feel free to get in contact with us.

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