Binary option terminology
Binary options depend on the outcome of a "yes or no" proposition, hence the name "binary. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price based on the trade taken for the trader to make a profit.
Note that the binary trading lingo found on this page covers all of the major binary options platforms. Asset — The instrument that underlies the trade. Binary options are traded based on stocks, commodities, currency pairs, and indices. At The Money — Describes a binary option for which the price at expiration equals its strike price. There is no gain or loss for the trader.
A binary option automatically exercisesmeaning the gain or loss on the trade is automatically credited or debited to the trader's account when the option expires. That means the buyer of a binary option will either receive a payout or lose their entire investment in the trade--there is nothing in between.
Conversely, the seller of the option will either retain the buyer's premium, or be required to make the full payout.
Key Takeaways Binary options depend on the outcome of a "yes or no" proposition. Traders receive a payout if the binary option expires in the money and incur a loss if it expires out of the money. Binary options set a fixed payout and loss amount.
Expiration Rate in Binary Options Asset — this is the underlying stock, commodity, currency pair or index, on which the binary option is based. Binary option —this term contains excessive information that cant be explained in just a few words. Basically, the binary option can be explained as way of online investment for a fixed return with an expiration period, which is also fixed. It has gained huge popularity in the last couple of years mainly because its simplicity and appeal toward the general public.
Binary options don't allow traders to take a binary option terminology in the underlying security. Most binary options trading occurs outside the United States. The trader makes a decision, either yes it will be higher or no it will be lower.
Binary Options vs. A European option is the same, except traders can only exercise that right on the expiration date.
Vanilla options, or just optionsprovide the buyer with potential ownership of the underlying asset. When buying these options, traders have fixed risk, but profits vary depending on how far the price of the underlying asset moves.
Binary Options Terminology
Binary options differ in that they don't provide the possibility of taking a position in the underlying asset. Binary options typically specify a fixed maximum payout, while the maximum risk is limited to the amount invested in the option. Movement in the underlying asset doesn't impact the payout received or loss incurred.
The profit binary option terminology loss depends on whether the price of the underlying is on the correct side of the strike price. Some binary options can be closed before expiration, although this typically reduces the payout received if the option is in the money.
Binary Options Terminology - Forex for beginners on icoane-ortodoxe.com
Therefore, investors should be wary of the potential for fraud. Conversely, vanilla options trade on regulated U. If the trader wanted to make a more significant investment, they could change the number of options traded.
Non-Nadex binary options are similar, except they typically aren't regulated in the U. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
Review Asset The asset is the underlying tool or instrument that is chosen for binary options trading contract determinations.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
Securities and Exchange Commission. Accessed Oct.