In the field of professional Internet trading, there are many specific definitions, without understanding which it is often very difficult to understand this or that information. But every binary options trader who plans to make a stable living from trading learns a lot, and in order to make his path easier and eliminate confusion and misunderstanding, we have prepared a special binary options trader dictionary with the most popular terms.
In this article you can find basic definitions regarding binary options trading and trading in general. The material will be useful not only for beginners, but for those traders who want to expand their knowledge and vocabulary in this professional field. Some words and phrases you may have already heard, but some will definitely be new to you.
Binary options trader's dictionary in simple words
In binary options trading and trading in general, there are a huge number of words, phrases, concepts and phrases that are not even known to all professionals. And it is worth noting that most of these words are not necessary to know, since they are simply not used in everyday binary options trading. Therefore, further we will analyze only popular words and phrases that can be heard when communicating with average traders on forums and in various public pages.
Binary options and their types
A binary option is a term that refers to a digital contract that a buyer purchases from a seller with the right to buy an underlying asset at a set price at any time before its expiration (American type of binary options) or upon its expiration (European type of binary options).
A Call option (“Higher”) is a binary option that gives its owner the right to receive a certain profit if the price of the underlying instrument exceeds the initial value after the expiration time.
A Put option (“Below”) is a binary option that gives its owner the right to receive a certain profit if the rate of the underlying instrument is below the initial price after the expiration time.
American binary options are types of options whose buyer has the right to exercise them before expiration. Simply put, these types of binary options can be closed early. The disadvantage of such options is that the broker returns for early closure a much smaller amount than was invested in the transaction. Also, not all brokers offer American binary options for trading, but they are not uncommon.
European binary options are types of options that are closed only during their expiration. This type of options is basic and is available at absolutely every broker.
All-or-nothing options are the generic name for a standard binary option that will either provide a fixed return or expire upon expiration. Thus, the buyer of this contract needs to predict the direction of movement of the asset by the time the option expires.
“Higher/Lower” options are a digital contract, when purchasing which you need to determine in advance whether the price will rise or fall. Absolutely all brokers offer these types of options.
“Up/Down” options are a digital contract, when purchasing which, just like in “Higher/Lower” options, you need to correctly predict which way the price will go, but at the same time there is still a level above or below which the price should be moment of expiration.
Touch Options – This type of option is based on the trader's prediction that the price will reach a certain level before the expiration date of the contract itself. When purchasing a Touch Call option, the trader expects the asset to rise to a specific level during the life of the contract. When purchasing this type of put option, the trader expects the asset to fall to a specific level during the life of the contract.
“No Touch” options are binary options that require that the price not touch a certain level before expiration.
“Range” options are a type of contract that is based on the forecast of price movements of the underlying asset within a given corridor. If a trader buys a range option, then for a successful transaction he needs the price of the underlying asset with the Call option to rise above the initial one, but not further than beyond a certain limit. When purchasing a Put option, the price of the underlying asset fell below the initial price, but not further than beyond a certain limit.
“Out of Range” options are a digital contract, the purchase of which must leave the price outside a certain range before the end of expiration.
“Turbo” options (turbo options) are a type of binary option that opens with a very short expiration time. The expiration range when trading such options can start from a few ticks, but more often it is 60 seconds. The maximum expiration for turbo options can be 5 minutes.
“Spread” options are a type of option, when trading which you need to correctly predict the direction of the price movement, and also predict how many points the price will move away from the purchase price of the option.
“Express” options (express options) are a type of binary options, when trading which a transaction is made on 3 or more transactions at once. For example, one express option may contain a Call option on the EUR/USD currency pair, a Put option on gold and a Call option on Apple shares.
Trading binary options
Trading asset (basis, base) - this term means a common name in binary options trading, which refers to currency pairs, stocks, cryptocurrencies or stock indices that are used as the basis for calculating the value of derivative instruments - binary options. While derivatives are completely dependent on their underlying, the value of the underlying asset can be influenced by many real factors, be it resource prices, news, political and economic situations, and others.
Rate (price) – the current value of the underlying asset. At the moment a binary option is purchased, this value is set as the initial price.
The initial price is the value that the underlying asset had at the time the option was purchased. The position of the asset relative to this value at the time the option expires determines whether a profit will be made.
Expiration price is the price level of an asset that was obtained at the time of expiration of its option. This indicator determines whether the option will be profitable.
Expiration time is the specified time until which the option will be valid. When this moment arrives, it is considered completed. The trader’s profit will also depend on the correctly selected expiration date, because it is at this moment that the position of the underlying asset determines whether the option will win or expire.
A trading strategy is a set of rules and principles that guide a trader when making transactions. Indicators such as profitability, number of successful transactions and risks depend on the quality and type of strategy.
The amount of risk is essentially the amount of money spent on a contract that could be lost if it is not fulfilled. By increasing or decreasing an investment in options, a trader proportionally changes the risk to capital.
The amount of profit is a fixed amount of profit that a trader will receive if his option is “in the money”, i.e. will have a positive value. This indicator is determined before opening a position. Regardless of how far the price of the main asset goes from the initial one if the trader’s forecast is fulfilled, his profit percentage will remain unchanged.
ITM (“in the money”) is the option that brought profit to the trader at the time of its execution. In other words, the real price of the underlying was in a favorable position for the trader. For example, an “in the money” call option will be a contract that is executed at the moment when the value of the underlying asset exceeds the initial price.
OTM (“out of the money”) is an option that burned at the time of its expiration and did not meet the trader’s forecast. In this case, the price of the underlying was at a disadvantage for the trader. For example, an out-of-the-money call option would be a contract that expired at a time when the value of the underlying asset was below the initial price.
ATM (“at the money”) is a term that refers to an option that, at the time of its execution, finds itself in a situation where the value of the underlying instrument is equal to the initial price.
A robot (advisor) for binary options is a third-party plugin or program for trading binary options using specified strategies or a specific algorithm “built into” the robot.
Signals for binary options are trading recommendations that indicate which option to buy, when and with what expiration. Signals can be provided by either a broker or an individual trader. Also, signals can be free or paid.
Types of trading assets
Currency pairs are a type of trading asset in which the components are two currencies. At the same time, when you buy one currency, you immediately automatically sell the second. For example, when buying the EUR/USD currency pair, you buy the euro and sell the dollar.
Cryptocurrencies are a type of trading asset based on digital money (currencies) that operate on a blockchain and can consist of coins or tokens . Examples of such digital currencies are Bitcoin or Ethereum .
Shares are securities that are issued by the issuing company in order to increase the capitalization of the company. Examples of companies whose shares are traded on world exchanges include Apple, Microsoft, Coca-Cola and others.
Commodities are trading assets that are based on raw materials (oil, gold, silver, gas and the like)
A CFD is an agreement between a seller and a buyer to transfer the difference between the current value of an asset (opening a position) and its value at the end of the contract (closing a position).
An ETF is a fund that is traded on an exchange. Simply put, if you buy an ETF, you are not buying just one asset, but a full portfolio of assets based on a specific industry. For example, this could be an ETF consisting of companies in the oil industry or based on companies that mine precious metals.
An index is a certain calculated value that reflects changes in the total value of all assets included in it.
A stock index is a value that reflects general price changes in a group of shares taken as its basis. Such indices include Dow Jones, S&P, Nikkei and the like.
Analysis and forecasting
Technical analysis is a set of methods for analyzing the behavior of prices of the underlying asset using technical means, be it mathematical calculations or charts. These include all kinds of indicators and graphical techniques that help assess the prospects of price movements using calculations and visualization. A striking example of a technical analysis method is the moving average , which helps to see the average price movement and predict the development of a trend.
Fundamental analysis is a set of non-technical methods for analyzing factors that can affect the behavior of the price of the underlying asset. These may include events in the economy and politics, changes in prices for resources and currencies, internal factors (for example, a company’s reporting may affect the price of its shares) and others. Traders who practice this type of analysis usually study the news background for the emergence of significant factors that can affect the course of trading on the stock exchange.
A trend or trend is a directional movement of asset prices over a certain period of time. Such movements are usually formed as a result of sustained buying or selling. Having determined the presence of a trend in time, a trader can make a more confident forecast when buying a binary option. For this reason, the ability to recognize price trends in the market is extremely important.
A bullish trend (“bulls”) is an uptrend in which the price rises most of the time.
A bearish trend (“bears”) is a downward trend in which the price falls most of the time.
A flat (sideways trend, sideways trend, consolidation) is a trend in which the price most of the time is in a certain range (corridor).
Support and resistance is a term that denotes price levels to which the price reacts and, when approaching these levels, pushes away from them.
Everything about binary options brokers
Binary options brokers are companies that provide everyone with the opportunity to trade on the stock exchange. These could be binary options brokers, Forex brokers , cryptocurrency exchanges , and so on.
A real account is an account into which real money is deposited for trading binary options or other trading instruments.
A demo account is a virtual account that does not need to be replenished, and at the same time you can conduct exactly the same trading as on a real account, but without the ability to withdraw your profits.
A deposit is the amount that a trader deposits into his real account to make trades.
Verification is the process by which you confirm your identity after opening a trading account. This procedure is necessary in order to stop the possibility of money laundering, and also because regulators require it.
Trading tournaments are competitions held by binary options brokers for their traders. Thanks to such tournaments, everyone can win both real money and other bonuses and gifts.
A regulator is a company that acts as a supervisory authority to prevent fraud among brokers. An example of such a company would be TsROFR (Russia) or CySEC (Cyprus).
Everything related to bonuses and promotions
Bonuses (gifts) are incentives from a binary options broker, which can be expressed in money or gifts in the form of risk-free transactions and other bonuses.
Promotional codes are a set of numbers and letters, thanks to which, when replenishing your account or simply in your broker’s personal account, you can activate a deposit bonus, risk-free transactions, cashback and other bonuses.
A risk-free trade (cancellation of a losing trade) is a trade that can be marked in the event of a loss. For example, if you bought a Call option and it turns out to be a loss, you can apply the risk-free trade and have all the lost funds returned to your trading account.
A deposit bonus is a bonus in the form of money that you receive when you fund your trading account. Such a bonus can be either real money or bonus money.
A no deposit bonus is a type of bonus in which, after registering with a binary options broker, you do not need to deposit your funds to start trading. Traders can receive such bonuses after registration, but the main condition is that you should not have other open accounts with this broker. It is also worth noting that this is a rather rare type of bonus and usually does not exceed $5.
Cashback is a type of bonus that allows you to receive cashback for your unprofitable transactions. For example, you made a trade with a Put option and received a loss of $100. The broker has provided you with a 5% cashback, which means you will get $5 back into your account.
Terminals and trading platforms
Trading platform (terminal) is an application through which remote trading is carried out on the stock exchange. Also, such software tools are often equipped with indicators and technical analysis systems.
MetaTrader 4 (MT4) is one of the most popular trading terminals, in which you can install custom indicators and conduct a comprehensive market analysis.
A chart is a tool through which you can track price movements, conduct technical analysis, and monitor prices and trends. The chart can be candlestick, bar, line and can also be presented in different time frames.
Candlestick chart (candles) is a chart consisting of candles, which in turn have a candle body and candle shadows. The body of the candle shows the range in which the price moved during a certain period of time from open to close, and the shadows show the overall range of price movement.
A bar chart (bars) is exactly the same chart as a candlestick chart, but it is expressed in the form of bars, which also have marks for the opening and closing of the bar, and its shadow.
Line chart is a chart in the form of a line on which you can see only the opening and closing prices.
Timeframes are the periods by which the chart is built. Theoretically, the timeframe can be of absolutely any size, but the standard ones are 1, 5, 15, 30 minutes; 1 and 4 hours; 1 day, 1 week and 1 month.
Indicators are trading algorithms written using code (programming) and performing the function of analyzing price movement to obtain trading signals.
General concepts in binary options
Trader – a person who makes transactions on the stock exchange.
Trading history is a term that means the history of all trades made by a trader over a certain period.
OTC These are quotes that work not only on weekdays, but also on weekends and holidays. Regular quotes do not work on Saturday and Sunday, as well as on some holidays, as these are bank holidays.
Scam is a scam , or, more simply put, brokers who deceive traders and do not withdraw money.
“Draining” a deposit is a situation when a trader loses his entire deposit without the possibility of making transactions until he replenishes the account again.
“Acceleration” of a deposit is a situation when a trader increases his deposit by trading several times. For example, if you deposited $100 into your account and after a month there is already $1,000 in your account, then you have multiplied the deposit by 10 times or increased it by 1,000%.
Volatility is the amount of movement of a trading asset. For example, before news, the volatility of currency pairs can increase significantly due to the fact that a large number of traders buy and sell currencies at the same time. Because of this, the price can rise or fall by hundreds of points in a matter of minutes.
“Grail” is the name for trading systems, indicators or methods that give only profitable signals 100% of the time. But of course, such systems do not exist and it is important to understand this.
Martingale (Martin) is one of the methods of capital management, in which, when a loss occurs, the amount of each subsequent transaction is doubled. Simply put, the result is the following line of transactions: $1-$2-$4-$8-$16-$32 and so on.
Anti-Martingale is a method that works opposite to Martingale. And in this case, the transaction amount increases when a profit is made, not a loss.
The demand price is the level of an asset in quotes on the stock exchange at which the best bids to buy are placed.
The offer price is the level of an asset in quotes on the exchange at which the best bids for sale are located.
Return value (% protection) – this means a certain percentage of the initial investment in the option, which will be returned to the trader in the event of an unsuccessful transaction. Let's say that before buying an option of $100, protection was set at 15%. In this case, the trader will receive $15 back in the event that the option does not live up to the forecast and expires. The amount of such a return is set before opening a position, as well as the size of the payout for a positive transaction.
Trading session time is the time during which options can be traded. Options trading can be limited not only to time frames, but even to certain days of the week or specific dates.
End of the trading day – end of the trading session.
Turnover is the number of units of an underlying asset (for example, shares) that were bought or sold in a given time period. For example, if in an hour there were only two transactions of 100 and 250 units in the underlying asset, then the total turnover in 60 minutes will be 350 units.
Money management is capital management, thanks to which you can increase your income or reduce losses. Simply put, this is control of maximum amounts when making transactions.
Risk management is risk management, thanks to which you can increase your income or reduce losses. Simply put, this is risk control when making transactions.
A trader's diary is a table in which a trader enters all his transactions and analyzes them to find and correct his mistakes during trading. For example, thanks to the diary, you can see that you are either taking a lot of risk after receiving a loss, or, on the contrary, you are not making a profit.
Trading psychology is a technique and practical exercises that allow a trader to develop his psychological qualities that help him make money and, conversely, reduce the influence of those character traits that hinder profitable trading.
Correlation is a connection between certain trading assets that move in almost the same way and can also react in the same way to news and other fundamental factors.
Investment – the amount of money invested when opening a position.
Straddle is a combination of call and put options with the same expiration time, in which the initial price of the call will be lower than that of the put. This type of transaction allows you to reduce overall risks.
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