Binary Options Terminology

Financial markets can be extremely confusing – especially when terms are thrown around which mean absolutely nothing to you. Learning the lingo is an important part of financial trading, especially if you want to be able to discuss the topic with other people and peers.

To make the binary options industry a bit easier for you to understand; we've gone through and reviewed some definitions for you to understand. Hopefully these will help.

Call Option

A contract which is bought when the price of the underlying instrument is expected to increase. If the price does increase – you will make a profit. However, if the price decreases, your loss is equal to the amount that you paid for the contract and no more.

Put Option

The exact opposite of a call option. This is bought when the price of the underlying instrument is expected to decrease. If the price does decrease, you profit. However, if the price increases – your loss is only equal to the amount you initially paid for the contract.

In the Money

When the expiry date of the binary option comes around, there are a number of positions that the option can be in. If you are sitting on a profit (i.e. if the contract has been successful and you have made money) this is referred to as being "n the money".

Out of the Money

If your contract has gone against you, and you have made a loss, the option will expire "out of the money". Thankfully though, the maximum amount you can lose is equal to amount you originally paid to buy the contract.

At the Money

If there has been no movement in the underlying price over the course of the option – the contract will expire "at the money". This is often referred to as the break-even point, and this is often determined before you buy the contract.

Expiry Date

The date at which the option will expire. You can buy or sell an option for almost any duration, from 1 month right through to 10 years. However, be aware that the longer the term, the more you will have to pay to buy the contract (because of the time value of money).

As you can see – there are a number of terms you need to familiarize yourself with before venturing in to the binary options world. Hopefully, this article will get you started.