Binary Options: The Basic Terminology
By: Hillel Fuld
Every financial market has its accompanying lingo. Words and phrases you will only see used in the context of that specific market. In Forex trading, there are pips and spreads and in Binary Options, there is “In the money” and “Out the money”.
The following are some explanations about the primary terminology used to describe the Binary Options market.
• Binary Options: The basic explanation is that like the meaning of the word “Binary”, with Binary Options, there are only two possible outcomes. You were either correct in your prediction and you therefore make profit, or you were incorrect, in which case you lose your money. How much do you make or lose from Binary Options? Well, that depends on your initial investment, but there is no issue of experiencing huge unexpected losses or making astronomical profits.
• Call Option: When a trader predicts that the instrument will increase in price. Even if the price then increases by a tenth of a cent, you profit from such a Binary Option.
• Put Option: When a trader predicts that the instrument will decrease in price. Even if the instrument then decreases by a tenth of a cent, you profit from such a Binary Option.
• In the Money: If you “win” the trade, it is referred to as “In the Money”. For example, if you placed a Call Option, and the price increased, you are then “In the Money” in that Binary Option. On the flip side, if you placed a Put Option and the price decreased, you are also “In the Money”.
• Out the Money: If you “lose” the trade, it is referred to as “Out the Money”. For example, if you placed a Call Option, that the price decreased, you are then “Out the Money” in Binary Options. On the flip side, if you placed a “Put Option” and the price increased, you are also “Out the Money”.
• At the Money: If the price of the instrument is identical at the expiry date to the amount that it was at the trading time. In this scenario, you were neither right nor wrong, in which case, your investment is returned to you in full with Binary Options.
• Expiry Date: The time or date at which the Binary Options expire and the price is examined to see if you are In the Money or Out the Money.
In conclusion, at first glance, some of the Binary Options lingo can seem confusing and overwhelming, but after a little reading, it all clears up and becomes understandable.