GLOSSARY

A

Asset

A stock, commodity, currency, or index.

At The Money

When the option expiry price is the same as the buying price.

B

Binary Option

Also known as Digital options or FROs, it is a prediction of the direction a stock, commodity, index, or foreign currency will take by a designated expiry time.

C

Call Option

When the trader has chosen the upward direction for an asset price by expiry.

CFDs

A CFD, or Contract for Difference, is an agreement between a buyer and a seller stating that the seller will pay the buyer the difference between the value of an asset at the time the agreement was made and its value at the present time. CFDs have become very popular among traders due to the many advantages they offer.

E

Expiry Price

The price of the underlying asset at the time of expiry according to the real-time market price. The expiry price determines whether the option has expired in-the-money or out-of-the-money.

Expiry Time

The designated time and date at which an option expires.

 

F

Forex

Forex and FX are shortened terms used for ‘foreign exchange’. Foreign exchange or ‘currency trading’ is the exchange of money from different countries. The value of one country’s currency is constantly changing against the value of another country’s currency. Forex traders make money through buying and selling currencies on the foreign exchange market.

I

In the Money

A trader’s option is in-the-money when his prediction on the direction (regardless if it was above or below) was correct.  Options expire in-the-money, and the trader receives the full payout even if the trader was correct by a single pip.

Investment

The amount invested in a specific option.

L

Leverage

In finance, leverage refers to borrowing money to supplement existing funds for investments in such a way that the potential positive or negative outcome is magnified and/or enhanced. Leverage is vitally important to your trading activities since choosing the incorrect leverage could result in large losses and damage potential profits. The amount of leverage on your account partly determines the amount of funds you need to put up for a trade. Leverage gives the trader the ability to trade larger amounts of currency with a smaller deposit amount. For example with a $200 deposit and a leverage of 1:500 this would allow you to trade up to $10,000 worth of currency.

M

Margin call

Margin call or stop out is when the margin level of your account falls to or below a specified amount, and your trades are automatically closed, thus protecting your equity and preventing your account from falling into a negative balance.

O

Out Of The Money

A binary option is out-of-the-money when the trader’s prediction was incorrect regarding the direction of the price by expiry time.  The trader will then receive 10% of his investment amount.

Over the Counter (OTC) trading

A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor, and no actual delivery of these currencies.

P

Payout

The percentage amount that the trader will receive at option expiry.

Pip

A pip is a number value. In the Forex market, the value of currency is given in pips. One pip equals 0.0001, two pips equals 0.0002, three pips equals 0.0003 and so on. One pip is the smallest price change that an exchange rate can make. Most currencies are priced to four numbers after the point. For example, a five pip spread for EUR/USD is 1.2530/1.2535.

Put Option

When the trader has chosen a downward direction for the asset price.

S

Spread

The spread is the difference between the buy price and the sell price. Two prices are given for a currency pair; the spread represents the difference between what the market maker gives to buy from a trader, and what the market maker takes to sell to a trader. In general, smaller spreads are better for Forex investors because a smaller movement in exchange rates allows them to profit more easily from a trade. Finally, the spread is where the market maker will make their money.

Stop loss order

A stop loss order is used for minimising losses if the price has started to move in an unprofitable direction. If the price reaches this level, the position will be closed automatically. Such orders are always connected to an open position or pending order.

T

Take profit order

A take profit is an order intended for gaining profit when the price has reached a certain level. Execution of this order results in closing the position. It is always connected to an open position or pending order.