Binary Options for Dummies

Below is a short glossary of terms used in the binary options trading world.

Asset: A financial asset is a security or contract that can generally be transferred or traded (for example on a financial market), and which is likely to produce revenue and/or a capital gain for its holder, in compensation for certain risk-taking. Binary options assets are not restricted to one market. Assets can be held in the form of currency, such as the trading of Euros for Dollars, stock option assets, such as the price of Google stocks, commodity assets such as oil or gold, and market index assets, such as FTSE100 or NASDAQ.

Call Option: By selecting this option, you estimate that the asset price will be higher than its rate when the transaction is made. If your estimation is accurate, you earn benefits instantly.

Put Option: If you select this option, you are estimating that the asset price will be beneath its rate when the transaction is made. If your estimation is accurate, you earn benefits instantly.

PIP: Or “price interest point” – PIP is the unit of measurement used on the currency market to evaluate the spread between two currencies. When the Euro is traded with the US Dollar at 1.2650 and is sold back at 1.2654, the spread of 4 ten-thousandths of this currency is translated in market terms by 4 pips. With binary options, one pip is enough to make the difference and allow you to earn between 70 and 85% profit, contrary to the Forex platforms, where a minimum difference of 4 to 9 pips is required in order to begin earning profits, because 4 or 9 pips represent the brokers’ commissions.

In the money: You are “in the money” when the price of your asset is higher than its price when the transaction is made in the case if you have selected the Call option, and vice-versa if you’ve taken a Put option.

For example: You select a Call option on EUR/USD asset and this asset’s price at the time of your transaction is 1.2345. You are and remain “In the money” from the moment the asset price is higher than 1.2345, such as 1,2346. If, when your contract matures or expires, the rate is higher than 1.2345, you are therefore “In the money” and earn benefits.

Out the money: You are “out the money” when the price of your asset is higher than its price when the transaction is made if you have chosen the Put option, and vice-versa if you’ve taken a Put option.

For example: You select a Call option on the EUR/USD and this asset’s price at the time of your transaction is 1.2345 You are and remain “out the money” from the moment the asset price is beneath 1.2345, such as 1,2344. If, when your contract matures or expires, the rate is beneath 1.2345 are therefore “out the money” and lose the amount of your investment.

Extend: This option allows you to prolong your binary options contract’s expiration time, in the event that you know that the asset will inevitably take the direction you have chosen, but that this might take a little longer than the time you are allowed with your binary options contract. You thus guarantee a profit on your investment.

Close: This option allows you two possibilities:

If you realize that the direction you have taken is the wrong one, you can use this option in order to limit the losses on your investment. Let’s say that you have closed a position for an amount of 100 Euros. Instead of waiting for your binary options contract to expire and lose the entire 100 Euros, you chose to close the binary options contract before its expiration and lose only 20% of your investment.

In the event that you realize the you have chosen the right direction, you are “In the money.” You can use this option in order to cash in on the profits from your investment. Let’s say that you have closed a position for an amount of 100 Euros Instead of waiting for your binary options contract to expire and take the risk of being “out the money,” you chose to close you binary options contract and cash in directly on a profit not between 70 and 85%, but a little less, such as 30%.