Binary Options Basics
As in any financial market, when you learn Binary Options basics you first must “speak the language”. You need to get to know its basic terms. Exactly as a Forex trader should know what is a pip or what are lots, you should know what are Put and Call options. This is why I’ve gathered here on this binary options basics article some of the must common terms you should know, with a short explanation. If you are new to binary options make sure to go over the list and get familiar with all of the following basic terms.
Binary Options. When you learn binary options basics it make sense to first understand what are binary options.. don’t you think?:) So here is a short explanation: “Binary” describes the situation when you have only two scenarios that are possible as the basic outcome. When trading binary options you predict the direction of an underlined asset.
You either right or wrong with your prediction.
Underlying Asset. When you trade binary options you choose an item to trade on. You actually pay for the opportunity to trade on a certain asset at a certain price and time. This asset on which you purchase the option to buy or to sell, is the underlying asset. An underlying asset in binary options can be a currency pair such as EUR/USD. It can also be a commodity such as Gold, an Index such as S$P 500. It can also be a stock such as Apple or Google.
A Call Option. A trader that make a prediction that a certain asset will rise in value may purchases a Call Option. Profit will be made in case of any increase, even the smallest.
A Put Option. A trader that make a prediction that a certain asset will lose value may purchases a Put Option. Profit will occur of any decrease, even the smallest.
In the Money (ITM). When a trader places a trade and he is right in his prediction then the price is in the profit zone. He wins the position as the trade is “In the Money”. As an example – When a binary options trader executed a Call Option, and now the price is trading in a higher value, you can say that he is “In the Money”.
Out of the Money (OTM). When a trader places a trade and he is wrong in his prediction, then the price is out of the profit zone. He will then lose, because the position is trading “Out of the Money”. For example – If a trader executed a Call Option, and now the price is trading in a lower value, you can say that he is “Out of the Money”.
Expiry Date. This is the date and time of an option expiration. The position is then examined to be in or out of the money, according to the price level at that exact timing.
Broker. You cannot trade directly with the market but only through a broker. A broker acts as an agent. It makes the connection between a trader and the market itself, using a trading platform. Brokers offer different trading conditions in regards to available traded assets, trading platform, support, and other features and trading tools.
This binary options basics article cover some of the very basic terms you must be familiar with before you start trading. In case you still have questions or would like me to cover more concepts let me know. I’ll be glad to address your requests. Now you can move on for some more advanced articles and strategies.