Glossary

Just like any industry, binary options have some key words and phrases that are unique to it. By familiarizing yourself with these therms, you will be better to understand the markets and your options within it.


At the money

A financial term meaning the market price of the asset is currently trading exactly at the target price.

Boundary Instrument

An instrument allowing the customer to decide whether the underlying asset will be located inside or outside a specified range (formed by a lower and upper target price) at the time of expiry.

Expiry Level

The expiry level of the underlying asset at the time of expiry of the asset is based on a feed provided by the data provider. For a detailed explanation of calculation of the expiry levels please refer to Expiry Calculation.

Binary Option

A binary option is one that offers a fixed return predetermined at the onset of the contract

Early Closure

Early closure refers to the ability of the investor to close an open position such that the option will immediately expire.

Expiry Time

The expiry time is the time and date at which an option expires.

High Option

An option on a High/Low instrument typically offers an 85% return if the underlying asset expires at a higher level than the option target price.

Inbound Option

An option on a Boundary instrument typically offers an 85% return if the underlying asset expires �Inbound� i.e. within the range formed by the upper and lower target values.

In the Money

An option on a High/Low instrument typically offers an 85% return if the underlying asset expires at a higher level than the option target price.

High/Low Instrument

An instrument that allows the customer to decide whether the underlying asset will be above or below the target price when the expiry time of the option is reached.

Investment Amount

The amount invested in the particular option.

Low Option

An option on a High/Low instrument typically offers an 85% return if the underlying asset expires at a lower level than the option target price.

Market Price

The market price quoted by 24option represents the current value of the underlying asset based on a feed provided by the data provider.

One Touch Instrument

An instrument where the customer decides whether the underlying asset will reach the target value during the lifetime of the option.

Touch Option

An option on a One Touch instrument typically offers an 85% return if the underlying asset reaches the target price at any time during the lifetime of the option. (Note – Should a touch option reach the target price at any time during the lifetime of the option then the option automatically and immediately expires “In the Money”).

No Touch Option

An option on a One Touch instrument typically offers an 85% return if the underlying asset does not reach the target price during the lifetime of the option. Note: Should a No Touch option reach the target price at any time during the lifetime of the option then the option automatically and immediately expires Out of the Money.

Out of the Money

A financial term meaning the option is currently not profitable. e.g. in the case of a high option the market price is lower than the target price.

A few advices and practicing tools

“Thinking, Fast & Slow” is the title of the book that is most read in Wall Street in this period. Nobel-prize-winner Daniel Kahneman was the one who wrote it; he tried to identify the most common mistakes that most investors have to face.

1) “It is better to invest immediately before the pricelist increases too much”, this way taking for granted that the race towards high spots will last for some time and eliminating the possibility, incorrectly, of a sudden direction change.

2) “Prices are decreasing, I have to sell now”, while in reality a very famous and efficient saying suggests purchasing on minimal and selling on maximum.

3) “There are no possibilities of exiting the crisis”. A too pessimistic vision often ends up with confusing the vision of reality and leads us on the wrong path.

4) “If my friends bought that society, I have to buy too”, meaning that you get too influenced by people around you for fear of going against the flow.

5) “If my financial promoter said it, it has to be correct”, taking for granted that financial promoters can never be wrong.

6) “All risks are under control”, an extremely incorrect conviction since even the most defensive financial product has risks.

7) “I feel that today is the right day to make an investment”. It is always better to proceed with your feet on the ground before making an investment and to consider all the different variables in the game, since subjective perception can provide an incorrect vision of reality.

8) “Given what happened to me, I will never invest in the Stock market again”, while it is absolutely wrong to get influenced by negative events of the past.

9) “If others invest in this system, it must be correct”, while it is absolutely not the case.

10) “You have to act as institutional investors”, without considering that the investment choices made in order to administrate increased capitals, are not always advisable for those who possess smaller amounts.

Binary options are also facing a period of great development, thanks to their easy comprehensive mechanism. It would be a mistake to believe that the two forms of investment are alternative.

In fact, with a common investment strategy, you can operate on both markets, in order to optimize the characteristics of both. In the monetary front, there are access differences in the two markets: in forex trading, you can access all values 24/7, alternatively with price markets or with pending orders, while binary options offer access only with market prices, and only for some hours for determined values. Moreover, forex trading offers more complete platforms, which can be programmed.

There is also the possibility to acquire external software (forex expert advisor), who can guide the trader through various operations. The available platforms for binary options, till today, cannot be programmed, even though they are still in an evolution phase.

Combination of forex trading & binary options

Even though the binary options’ market, in comparison to forex, presents some limitations as regards the access mode in the monetary market, and the technology of the utilized platforms, on the other hand, it has the great advantage of not having financial levers, which make risk calculation more complex.

Risk administration in forex is mainly connected to the mechanism of stop losses, which, in some cases, can be unproductive for the trader.

Common investment strategies consist in the combination of positions, in order to obtain strategies that are appropriate to our risk profile and allow us to optimize the benefits of each market, at the same time reducing the negative aspects.

In fact, when buying an option below the charging price limit on forex trading, you can protect yourself from the eventual loss obtained by using the stop-loss.

A combined strategy between forex trading and binary options can be useful in order to proceed with operations, based on expiration dates you could administrate positions with a brief expiration with binary options, and the ones with longer expirations with forex trading.

For example, the acquisition of an ABOVE option on EUR/USD with an expiration date within the same day, and the contextual insertion of an order that is pending below in the forex trading platform, can cover the risk of a mistaken trend evaluation from our part.

Technical Analysis is based on the argument that the tendencies of the past will repeat themselves.

The asset’s price will fluctuate, and the models of this historical behavior are likely to repeat themselves again. Therefore, analysts use indicators and other analytical instruments to try and identify that hints that regard past tendencies, so that they can predict the asset’s following behavior.

Technical analysis uses a lot of indicators from the market’s behavior, in order to gain important information on the future direction of the asset’s price. The utilization of historical data and of other indicators, combined with fundamental analysis, can create an excellent trading strategy, capable of increasing greatly the profits of a portfolio.

Support and Resistance

The technical analysis mechanisms that are most commonly used are support and resistance levels. These lines act as direct indicators of the past tendencies that regard the prices of an asset. If an asset decreases following a pattern that has already been seen in the past, the analysts observe the behavior that took place and predict a similar tendency in the near future. If an asset is increasing in price and is quickly approaching a resistance line, many traders will be careful to find a tendency inversion in that point.

This is because, based on the past data, the asset has decreased various times during its approaching to the resistance line. Considering that technical analysis is based on the consideration that the historical behavior will probably repeat itself, the hypothesis that can be done is that the increasing tendency might stop at this level. These levels tend to be independent and a lot of investors refer to them as value indicators and use them to make trading decisions.

Relative Strength Index

The RSI is one of the best indicators of the possible behavior of the market’s conditions. The RSI uses a very simple concept to understand, which shows the asset’s relative strength in any moment. The strength varies according to the position’s longevity. Considering that binary options are short term investments, it is important to apply this indicator in a short term table, in order to achieve the best results through its use.

The index specifies to its users if the asset is at an overbuying or overselling level, and so which option is more appropriate for the trader. The indicator uses three crucial levels: 30, 50, 70. If the index is close to or overpasses level 70, the asset is considered overbought.

This should result in a correction towards the bottom, since the asset has a price that is too high due to elevated demand. On the other hand, when the index drops around level 30, the asset is oversold and we should expect a correction towards the top. Therefore it is the right time to buy the asset and to expect an appropriate appreciation. The RSI is a tool that is useful to the trader of any level, capable of creating opportunities for long & short term strategies.

Volatility

Binary options are directly influenced by the market’s volatility. When the volatility is increased, it is appropriate to use this information to achieve extra profits. For example, the one-touch binary option is a contract between two parties, based on the fact that one asset either achieves or not a certain price before the option’s expiration date. When the volatility is increased, the probability that the price will be achieved increases.

According to some analytical factors, it might be a good thing for the trader to enter a “touch” position, if he/she thinks that a certain price will be reached. In case the price is achieved, the trader will earn the profit that was set at the moment of the option’s entrance in the market.

Nevertheless, there are a few moments within the day when the volatility is decreased. In these moments, it is more logical to use “no-touch” options, since it is unlikely that the market will fluctuate enough to achieve the target price.

Binary Option

A binary option (or digital) is a kind of option where the pay-off (profit) is either limited to a fixed amount (as part of an asset) or equal to zero.

Binary options are named after the fact that the investment’s outcome only has two possible results: correct or incorrect prediction.

These options’ characteristic is that they do not evaluate the profit in differential terms (such as the difference between the asset’s market value and its strike price), but the income is set up during the contract’s issuance. In fewer words, binary options are a bet on a trend (fluctuation) of a certain asset, which could be increasing or decreasing, in the short, medium or long term. The great study on binary options is linked to the necessity and the difficulty to financially own assets that can only achieve two possible values, in this case “1” and “0”.

Keep in mind that trading with binary options, even though it is extremely easy to do, is nevertheless a serious activity and not a game, and if you are planning to “bet”, I strongly advise you to select other kinds of lucky games, such as casinos, where luck is the main factor. In order to succeed with binary options, the first step is to evaluate the pros (big profits) and the cons (possibility of losing your entire capital) and to act intelligently and not casually.

Binary trading is not a lucky game or a bet, where the only thing that matters is pure fortune; option trading is a real business activity, which can produce income and profit, if used in a cautious manner.

One of the greatest international experts on binary options is Sanford J. Grossman of the University of Pennsylvania in Philadelphia, who put in theory and then elaborated a mathematical model in order to create a complete mathematical representation of this complex argument.

Foreign exchange ( Forex )

The Foreign Exchange market (Forex) is the biggest financial market in the world. The average business value is estimated to 4 million dollars a day.

The Forex market provides a platform for the daily exchange of assets, permitting to traders all over the world to achieve profits from the market’s movements, regardless of the time of day.

The market involves extremely increased volumes, which permits high levels of liquidity. In opposing equities and other debt markets, the asset’s exchange operates through the utilization of a bigger incentive, which gives the investors the opportunity to achieve high profits, without risking a lot of money.

In the last decade, the forex market has really had a great impact on the financial structure and operation. The rapid and constant modifications in the monetary system influence the entire financial framework every day.

International exchanges are influenced by these price fluctuations, since these values determine the volumes of the merchandise and of the services, which are bought and sold in the various countries.

As a consequence, as a result of the modification in the asset’s value, the final cost of each transaction varies, influencing the actions of the government, the industries and even those of single consumers. So, the importance of the Forex market has increased greatly in the last years.

Global Trading

Global Trading Opening Hours

Knowing the opening hours of stock markets when you are evaluating information's significance on the market is fundamental for your trading strategy

 

The biggest opportunities in exchanging pair values arise when two markets are open at the same time. For example, European and American trading markets on EUR/USD, GBP/USD, or USD/CHF are open simultaneously in the times between 13:00 & 17:00 (GMT). These are the most appropriate hours to trade on these values, since most exchanges occur in this period, creating a bigger market movement which offers more possibilities of exploitation of market movements.

In some cases it also depends from the value pair on which we wish to operate. Let&'s make a concrete example: if we wish to operate on Yen, the movements that are more interested, wider and with more profit possibilities happen during the night, because when it is night here, it is day in Japan.

On the other hand, when we operate on dollars, it is better to begin in the afternoon, when in the USA the sun is rising. Moreover, the afternoon is the perfect time because it is possible to make the most profitable exchange that involve euro, pound and dollar, which is absolutely the most important value in all the markets.

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