Here’s a list of terms to help our traders navigate the world of online financial trading. If we haven’t covered a term here that you’d like defined, please let us know by emailing contacting us.
Trading Terminology Definitions
Ask: This is the price a seller will accept for a security. It is also known as the “Offer Price”.
Asset: Refers to the security being traded. Examples include: stocks, which are securities that represent ownership in a corporation; currencies like Euros or Japanese Yen; commodities – which refers to raw material/natural resources.
At the money: This is also referred to as a break-even point. Essentially, the value of the asset at the end of the trading cycle is the same as when you first purchased it. You won’t be making any profit, but you may get a full or percentage based refund on your initial investment, depending on the terms of your broker.
Bearish: This refers to a market in decline.
Bid: A bid price is the amount a buyer is willing to pay for a security, and a bid size is the number of shares an investor is willing to purchase. Binary Options and Forex only focus on the price not the size of a bid as no shares are actually purchased.
Bonus: There are a number of incentives that online brokers offer traders to signup, re-deposit or even as a promotion. These bonuses are usually a fantastic incentive to gain more value on your trading experience.
Boundary: This is a binary trading option that allows a trader to speculate the movement range of an asset over a predetermined time. Finishing within your chosen range will mean you finish “In the money.”
Broker (Online): An online Forex or Binary Options company that acts as source for traders to trade online. TradersAsset aims to review and present the best Binary Options and Forex brokers to our traders.
Bullish: The opposite of “bearish”. A “bullish” market is one that is on the rise.
Call Options: This is a contract whereby the buyer can purchase the underlying commodity at the strike price at any time up to the expiration time.
Commodities: This refers to raw material such as gold and silver, natural resources such as oil and gas, or primary agricultural products such as coffee, cocoa or even livestock.
Current Rate: This is the rate or price of a given asset. Current rates may be delayed from that of the actual market by at least fifteen minutes, depending on the online broker you use.
Demo Account: This is a practice account that allows traders to experience a broker’s trading platform without risking any actual money. This usually has an expiry time ranging from two days to a week. A trader can trial the broker’s platform and then continue with a real money deposit if they liked the experience.
Double No Touch Options: A popular tool in Forex trading, this refers to a trading instrument whereby a trader can predict two specific levels that an asset must move in-between in value to generate a payout. If the chosen asset value beyond these two specified points the option automatically expires.
Early Closure: This refers to the ability to close an open position so that an option will immediately expire.
Exotic Option: An option contract consisting of attributes not usually found in most traditional contracts, which are now available to the general public in a simplified form – as binary options.
Expiry Time: The time and date at which an option or trade expires. The result of a trade is determined at this point.
Forex: The abbreviated term for “foreign exchange.” The foreign exchange market involves all global currencies.
Fundamental Analysis: A method of quantitative and qualitative analysis used by traders to determine which macroeconomic, and possibly company specific factors, should be taken into consideration when analyzing the possible behavior of a security or an asset. Many elements contribute to making these determinations, including decisions made by banks, inflation rates, the overall economy and even the general aptitude of a company’s management team.
Futures: A type contract that agrees to buy or sell a certain asset or security at a given point in the future.
High/Low: A binary trading option in which there’s a fixed payout if the asset’s final price falls above or below its starting price. This is the most common style of Binary Options Trading.
Index/Indices: An index (singular) or indices (plural) is the term used to refer to a grouping of securities set up in a way that tracks the asset pricing of a particular section of the market, sector or currency. For example, the “FTSE 100” index is a measure of the 100 most highly capitalized companies traded in the London Stock Exchange. The “XAU” index measures Gold and Precious metals.
In the money: A call option that has a higher value at the time of expiry than when the investment was made, is viewed as in-the-money. Likewise, a put option is in-the-money at the time of expiry when it is lower than the price the option was bought at.
Market Price: A quoted price that represents the current value of an asset using real time data to show current market rates.
No Touch: This is type of instrument gives a binary options trader a payout if their underlying asset does not reach or exceed a predicted price point during it’s lifetime. Should an investment reach the predicted price point at any time, it shall expire automatically.
One Touch: A binary trading option in which a predetermined or “touch” value is set for a particular asset. In order to be profitable, it has to reach or “touch”, or go over this level at least once before the trader defined expiry time.
Out of the money: This means that your call options expired lower than its buying price. Predictably, this does mean that your put option has expired higher than its buying price.
Payout or Return: The profit realized when a contract expires in the money. This can be anywhere from 65% up to 90% depending on which broker you trade with.
Pip: An acronym that stands for “Point In Percentage”. This is normally considered as up to four “points” to the right of the decimal in most currency pairs in Forex and asset/security values in Binary. This doesn’t apply to Yen where it is considered at two places to the right of the decimal. It is the measure of value that helps a trader calculate profits and losses.
Put Option: This refers to an option that is bought on the premise that the asset or security will decline in value beyond before its time of expiry.
Risk-free Trades: This is one of the most sought after trading incentives a broker can offer its traders. Some brokers offer their traders between 2-5 risk free trades. All the trader needs to do is trade as normal. If they lose, the broker will negate any losses or refund your loss.
Security: A Security is a tradable and intangible asset of any kind. This can include Stocks, Bonds, Mutual funds or more commonly for online traders, this includes the options offered by Binary Options Brokers.
Spread: This is usually the difference between the asking price and the bid of a particular asset. In options trading, the term “spread” refers to the difference between an asset’s market value and strike price.
Strike Price: This is the price of an asset at the time of sale, which will determine whether an option is “in the money” or “out of the money” at the time of expiry.
Technical Analysis: A system of analysis whereby historical data is examined to predict future trends in the prices of assets. There are a number of systems and tools that a trader can explore to aid them in this system of analysis.
Underlying Asset: This described the backbone of derivative trading such as Binary Options. It refers to the underlying asset that an option is built upon. In the case of Binary Options, this include all currencies, stocks, commodities and indices.