Glossary Of Terms

A

The "Asset" or "Instrument" is the underlying index, stock, commodity, or currency on which each trade is based.

Each asset is a unique tradable instrument. Some assets are traded on multiple exchanges in which case they are different and have different ticker symbols, e.g. Google is GOOG on NASDAQ and GGQ1 on Frankfurt Stock Exchange. Make sure when trading you are researching the correct underlying asset.

An "At-The-Money" trade or "Draw" is when the price of the asset at expiry is the same as the strike price so the trade expires "At-The-Money". When this occurs your investment stakes are returned to you. In other words it is a tie or a draw, there is no profit nor loss, you receive the stakes back.

B

A type of option where the return is all or nothing. Also known as Digital Options or Fixed Return Options (FROs). The return is a fixed amount rather than a variable amount such as with spread betting or contracts for difference.

C

Contract for difference.

"Call Option" is where the investor buys the option with the prediction that the expiry price will be higher than the strike price.

A form of derivative or option contract between "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at expiry time. If the difference is negative, then the buyer pays instead to the seller. By contrast to CFDs, binary options are much easier to use as they are far more straightforward and less complicated.

D

"Digital options" are another name for binary options or fixed return options (FROs).

A "Draw" or "At-The-Money" trade is when the price of the asset at expiry is the same as the strike price so the trade expires "At-The-Money". When this occurs your investment stakes are returned to you. In other words it is a tie or a draw, there is no profit nor loss, you receive the stakes back.

E

The "Exercise Price", also known as the "Strike Price", is the price of the underlying "Asset" or "Instrument" at the time the trade is placed. The exercise price forms the basis of the trade contract. At the trade's "Expiry Time", the asset's "Expiry Price" gets compared to the exercise price to determine whether the trade contract finished either "In-The-Money" so the trader wins and is entitled to the payout for the winning trade, or "Out-Of-The-Money" so the trader loses and is entitled to no payout.

The price of the underlying "Asset" or "Instrument" at the "Expiry Time". The "Expiry Price" is compared to the trade's "Strike Price" to determine whether the trade contract has value at the "Expiry Time". If the investor has properly predicted the underlying asset's price movement then the contract gets paid out.

Binary options have a fixed life term which is chosen by the trader at the time of purchasing the binary option contract. The expiry time is expressed as a date/time. The expiry time is the moment at which the trade contract ends. The strike price (the asset's price when the trade was made) is compared to the expiry price (the asset's price when the trade ends) to determine whether the trade contract gets paid out. Contracts are paid out each time the trader correctly predicts whether the asset's expiry price ended up either higher or lower than the strike price.

F

Fixed Return Option.

A type of option where the return is all or nothing. Also known as Binary Options, Digital Options or Fixed Return Options (FROs). The risk of loss as well as the potential for gain is fixed at the time the trade is placed rather than varying based upon the degree that the underlying asset price changes as is the case with traditional trading, contracts for difference, or spread betting where the risk and the reward is undetermined in advance.

I

Being "In-The-Money" simply means that your trade has won. Where you correctly predict an asset's price will be higher than the strike price at the time of expiry or correctly predict the asset's price will be lower than the strike price at the time of expiry, you will be "In-The-Money". When you win or are "In-The-Money", you will receive your invested stakes back plus the profit so for example if the profit is 100% and you stake $100 in the trade, you will receive $195 for a total return to you of 200%.

The "Instrument" or "Asset" is the underlying index, stock, commodity, or currency on which each trade is based.

Each instrument is a unique tradable asset. Some instruments are traded on multiple exchanges in which case they are different and have different ticker symbols, e.g. Google is GOOG on NASDAQ and GGQ1 on Frankfurt Stock Exchange. Make sure when trading you are researching the correct underlying instrument.

The amount of funds allocated to the purchase of the option. The investment could also be called the "Stakes" of the trade.

O

Being "Out-Of-The-Money" simply means that your trade has lost. A trade will lose where you incorrectly predict an asset's price will be higher than the strike price at the expiry time, or where you incorrectly predict the asset's price will be lower than the strike price at the expiry time, you will be "Out-Of-The-Money" meaning that your trade will have lost and your loss is limited to the invested stakes only.

P

The "Profit" is the amount that you "Win" or "Earn" when you make a successful trade. For example if the profit is 100% and you stake $100 in the trade, if the trade finishes "In-The-Money", you earn $95 plus you receive your investment stakes back for a total return of $195 or 200%.

"Put Option" is where the investor buys the option with the prediction that the expiry price will be lower than the strike price.

R

The return is the total amount you will receive when your trade finishes "In-The-Money". For example a profit of 100% on a $100 stakes trade would yield a total return of $195 (investment + profit = total return). In this case the profit is 100% but the total return is 200% because you receive your investment stakes back in full plus the profit when your trade finishes "In-The-Money".

S

The amount of funds allocated to the purchase of the option. The stakes could also be called the "Investment".

The "Strike Price", also known as the "Exercise Price", is the price of the underlying "Asset" or "Instrument" at the time the trade is placed. The strike price forms the basis of the trade contract. At the trade's "Expiry Time", the asset's "Expiry Price" gets compared to the strike price to determine whether the trade contract finished either "In-The-Money" so the trader wins and is entitled to the payout for the winning trade, or "Out-Of-The-Money" so the trader loses and is entitled to no payout.

U

An "Underlying Asset" is the index, commodity, or currency which forms the basis for every trade contract. See "Asset".

An "Underlying Instrument" is the index, commodity, or currency which forms the basis for every trade contract. See "Instrument".

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