Binary Options Glossary

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American Style Option
An option that can be exercised at any time on or before its expiration date.

Ask Price
The price at which a seller is offering to sell an option or a stock.

Asset
Underlying financial instrument used to determine the strike price of the contract. They are generally categorized as commodities, stocks, currency pairs or indices.

At The Money
A term that describes an option with a strike price that is equal to the current market price of the underlying stock.

Averaging Down
Buying more of a stock or an option at a lower price than the original purchase so as to reduce the average cost.

Quoted

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Bearish
An adjective describing the opinion that a stock, or a market in general, will decline in price.

Bid Price
The price at which a buyer is willing to buy an option or a stock.

Binary Options
Options which allow traders to earn a fixed amount if they correctly predict whether the value of the underlying asset will reach above or below the strike price when it expires. If traders incorrectly predict the direction of the asset’s value, they lose their investment.

Black-Scholes Formula
The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

Break Even Point(s)
The stock price(s) at which an option strategy results in neither a profit nor a loss. While a strategy's break-even point(s) are normally stated as of the option's expiration date, a theoretical option pricing model can be used to determine the strategy's break-even point(s) for other dates as well.

Broker
A person acting as an agent for making securities transactions. An 'Account Executive' or a 'broker' at a brokerage firm deals directly with customers. A 'Floor Broker' on the trading floor of an exchange actually executes someone else's trading orders.

Broker Ratings
Buy, sell, or hold recommendations or ratings given to individual company stocks by securities analysts, depending on how they think the stock will perform in the short- or long-term.

Bullish
An adjective describing the opinion that a stock, or the market in general, will rise in price.

Buy
You ‘buy’ a market if you think it will rise (if you are opening a new bet). You also ‘buy’ to close out an existing ‘sell’ bet.

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Cable
Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted between the London and New York exchanges via the transatlantic telegraph cable in the mid-1800s.

Call Option
It is one of the two option choices. If a trader believes that the value of the underlying asset will reach a higher value at the time of expiry, then they can purchase a call option.

Carry Trade
An investor sells a certain currency with a low interest rate and uses the funds to purchase a different currency at a higher interest rate, thus capturing the difference, or profit, between the two rates.

Cash Settlement Amount
Settlement of a futures contract in cash rather than in the physical asset underlying the contract.

CBOE
The Chicago Board Options Exchange

CBOT
Chicago Board of Trade

Central Bank
A government or quasi-governmental organization that manages a country's monetary policy. For example, the US Central Bank is the Federal Reserve, and the German Central Bank is the Bundesbank.

Charts
Visual representations of raw data. Investors can learn to spot recurring patterns on financial charts to help them make informed decisions about a market or a company.

Class of Options
A term referring to all options of the same type, either calls or puts, covering the same underlying stock.

Closing
The process of ending an existing trade. Closing a trade results in a profit or loss being realized.

[stockbroker]

Cable
Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted between the London and New York exchanges via the transatlantic telegraph cable in the mid-1800s.

Call Option
It is one of the two option choices. If a trader believes that the value of the underlying asset will reach a higher value at the time of expiry, then they can purchase a call option.

Carry Trade
An investor sells a certain currency with a low interest rate and uses the funds to purchase a different currency at a higher interest rate, thus capturing the difference, or profit, between the two rates.

Cash Settlement Amount
Settlement of a futures contract in cash rather than in the physical asset underlying the contract.

CBOE
The Chicago Board Options Exchange

CBOT
Chicago Board of Trade

Central Bank
A government or quasi-governmental organization that manages a country's monetary policy. For example, the US Central Bank is the Federal Reserve, and the German Central Bank is the Bundesbank.

Charts
Visual representations of raw data. Investors can learn to spot recurring patterns on financial charts to help them make informed decisions about a market or a company.

Class of Options
A term referring to all options of the same type, either calls or puts, covering the same underlying stock.

Closing
The process of ending an existing trade. Closing a trade results in a profit or loss being realized.

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Closing Price
The final price of a security at which a transaction was made.

CME
Chicago Mercantile Exchange

COMEX
Commodity Exchange Inc, New York

Commodity
A basic good used in commerce which is usually uniform across producers and can be traded on an exchange. Soft commodities are goods that are grown, such as coffee and sugar, while hard commodities are extracted through mining, such as gold and coal.

Contract Size
The quantity of goods or commodities underlying futures, forward and option contracts. Most equity options have a contract size of 100 shares.

Cover
An act of lowering risk exposure by closing an open position. This term is used most frequently to describe the purchase of an option or stock to close out an existing downwards position for either a profit or loss.

Credit
Money received in an account either from a deposit or a transaction which increases the account's cash balance.

Crude Oil (& WTI)
The unrefined state of petroleum, Crude Oil is one of the world’s most important and well-traded commodities. WTI or West Texas Intermediate is a type of low sulphur crude oil or sweet crude, used as an oil benchmark or marker.

CSCE
Coffee, Sugar and Cocoa Exchange

Currency Pair
The two currencies that comprise a Forex rate. A Forex rate is the amount that the first currency in the pair is worth expressed in terms of the second currency.

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Day Trade
A position (stock or option) that is opened and closed on the same day.

Delta
A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock.

Deposit
The funds required as an initial outlay for a trade. It is not the total amount that can be lost on the trade.

Depreciation
A fall in the value of an asset.

Digital Option
Another name used for a binary option. It has fixed payout and fixed loss.

Discount
An adjective used to describe an option that is trading at a price less than its intrinsic value.

Discretion
Freedom given by an investor to his floor broker or Account Executive to use his own judgment regarding the execution of an order.

Down Trade
A trade backing a particular price to fall.

Downtrend
A price trend characterized by a series of lower highs and lower lows.

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Economic Indicator
A statistic that indicates current economic growth and stability, or the lack of it. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

Equity
Ownership, or what a person, company or account has to its name.

Equity Option
An option on shares of an individual common stock or exchange traded fund.

EUREX
European Exchange, Frankfurt

European Central Bank (ECB)
The Central Bank for the new European Monetary Union

European Style Option
An option that can be exercised only on its expiration date and not before.

Exercise Price
The price at which the owner of an option can purchase (Call) or sell (Put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.

Exotic Options
These are types of options used exclusively by big time traders before they were available to the public. Binary options are simplified versions of exotic options.

Expiration Cycle
The calendar cycle of expiration months that is assigned to basic exchange-traded stock options. Although some options have contracts in every month, most equity options are traded with expiration months in every quarter.

Expiration Date
The date at which an option and the right to exercise it cease to exist.

Expiry Price
The price of the asset when the contract expires. In binary trading, an option is determined as either in-the-money or out-of-the-money based on the expiry price of the underlying asset.

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Federal Reserve (FED)
The Central Banking system for the United States.

Fill
The execution of an order.

Fill or Kill Order (FOK)
A type of option order which requires that the order be executed completely or not at all. If the order cannot be completely executed (i.e., filled in its entirety) as soon as it is announced in the trading crowd, it is to be 'killed' (i.e., cancelled) immediately.

Financial Industry Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority (FINRA), is the largest independent regulator for all securities firms doing business in the United States.

FINEX
Financial Instrument Exchange, New York

Fiscal Policy
The use of government spending and taxation to influence macroeconomic conditions.

Fixed Income
When an investment yields a regular or fixed return.

Floor Broker
A trader on an exchange floor who executes trading orders for other people.

Floor Trader
An exchange member on the trading floor who buys and sells for his or her own account.

Foreign Exchange (FX or Forex)
The simultaneous buying of one currency and selling of another.

FTSE
The FTSE 100, 250 and 350 are the best-known stock indices in the UK and are used primarily to bench mark the performance of UK companies by market capitalization. The constituent companies within each index are calculated quarterly. Informally known as the ‘Footsie’, the indices are maintained by FTSE Group, which is jointly owned by the Financial Times and the London Stock Exchange.

Fundamental Analysis
One of the major types of analysis used when trading to predict stock prices. Traders analyze companies by taking into account sales, earnings, products or services, and analyze the economy by taking into account factors like GDP, interest rates and unemployment. This differs from technical research, which uses past prices and trading to predict future prices.

Future (Forwards)
A future or forwards rate is notionally an agreement to conduct a transaction at some specified time in the future where the price is agreed now. Often the price of a future or forwards bet will differ from the cash price.

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Gap
The phenomenon of a market trading at a price away from the previous traded price without trades occurring at intervening prices. Usually, but not necessarily, relates to when a market resumes trading after a period of closure.

GDP
Gross Domestic Product, the total value of all final goods and services produced by the economy. A key measure of national income and output for a country's economy.

Hedge (Hedged Position)
A position established with the specific intent of protecting an existing position. For example, an owner of common stock may buy a put option to hedge against a possible stock price decline.

Historic Volatility
A measure of actual stock price changes over a specific period of time.

HKFE
Hong Kong Futures Exchange

Holder
Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.

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Illiquid Market
In an illiquid market, a small amount of business often moves prices by a disproportionate amount, and bid and offer prices can be far apart.

In-the-money
This is a term used to describe when an investor reaches a position when they realise profit. A call option is in the money if the expiry price is above the strike price. A put option is in the money if the expiry price is below the strike price.

Index
A compilation of several stock prices into a single number, for example, the S&P 100 Index.

Index Option
An option whose underlying interest is an index. Generally, index options are cash-settled.

Individual Volatility
The volatility percentage that justifies an option's price. A theoretical option pricing model can be used to generate an option's individual volatility when the quantifiable factors (stock price, time until expiration, strike price, interest rates, and cash dividends) are entered along with the price of the option itself.

Institution
A professional investment management company. Typically, this term is used to describe large money managers such as banks, pension funds, mutual funds, and insurance companies.

Instrument
Another term used for assets.

Interest Rate Futures
Interest rate futures allow you to take a view on all the main interest rate contracts, including Short Sterling, Gilt, Bund, Eurodollar, JGB and T-Bond. With short-term interest rate contracts, you can bet on the direction of a country's three-month interest rates. This means that if you think short-term interest rates will fall, you 'buy' and if you think rates will rise, you ‘sell’.

Investment Amount
This is the amount of money used to purchase the binary options contract. It is the money at stake for a put or call option.

IPE
International Petroleum Exchange, London

ISE
International Securities Exchange

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Last Dealing Time
The last time (on the last dealing day) you may trade on a particular market.

Last Trading Day
The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month.

LIFFE
London International Financial Futures Exchange

Liquidity (Liquid Market)
A trading environment characterised by high trading volume, a narrow spread between the bid and ask prices, and the ability to trade larger sized orders without significant price changes.

Listed Option
A put or call traded on a national options exchange. In contrast, over-the-counter options usually have non-standard or negotiated terms.

LME
London Metal Exchange

LSE
London Stock Exchange

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Margin (Margin Requirement)
The minimum equity required to support an investment position. To buy on margin refers to borrowing part of the purchase price of a security from a brokerage firm.

Mark To Market
An accounting process by which the price of securities held in an account are valued each day to reflect the closing price or market quote. As a result the equity in an account is updated daily to properly reflect current security prices.

Market Maker
An exchange member on the trading floor who buys and sells options for his or her own account and who has the responsibility of making bids and offers and maintaining a fair and orderly market.

Market Maker System
A method of supplying liquidity in options markets by having market makers in competition with one another. They are similarly charged with making fair and orderly markets in a given class of options.

Market Quote
A quotation of the current best bid / ask prices for an option or stock. This information is usually obtained by the investor from someone at a brokerage firm. However, for listed options and stocks, these quotes are widely disseminated and available.

MiFID
Markets in Financial Instruments Directive

Model
A mathematical formula used to calculate the theoretical value of an option.

Monetary Policy
The procedures by which a government or central bank seek to affect macroeconomic conditions by influencing the supply and availability of money.

MSE
Milan Stock Exchange

Multiple Listed (Multiple Traded Option)
Any option contract that is listed and traded on more than one national options exchange. NASDAQ A key index, this was the world's first electronic stock market, and is traditionally home to many high-tech stocks such as Microsoft, Intel, Dell and Cisco.

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Neutral
An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.

NYFE
New York Futures Exchange

NYMEX
New York Mercantile Exchange

NYSE
New York Stock Exchange

NYSE AMEX
American Stock Exchange