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Understanding these terms and concept is necessary because you will be using them on a daily basis during your trading career.
Naturally, if you start trading without having the necessary core knowledge, you are very likely to fail and wipe your initial capital. The main terms that we are about to mention are: asset, binary option, broker, current rate, expiration rate, range option, in the money, high or call option, low or put option, subjacent asset, out of the money, rate of profit.
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Asset – this is the underlying stock, commodity, currency pair or index, on which the binary option is based.
Binary option –this term contains excessive information that can’t be explained in just a few words. Basically, the binary option can be explained as a way of online investment for a fixed return with an expiration period, which is also fixed. It has gained huge popularity in the last couple of years mainly because of its simplicity and appeal to the general public.
Broker – brokerage companies allow users to trade binary options on the markets. It would be impossible to make a deal, if there werent any brokers.
Current rate – it represents the current price of the asset.
Range option – the term is also referred to as ‘’zone option’’ and it is the limit that companies usually specify for different zones.
Expiration time – the date and time when the option is about to expire.
High or Call Option – this is the most used type of binary option. It speculates that the assets price will rise.
Low or Put Option – the opposite of a High of Call option. It is purchased when the trader thinks that the assets price will decrease.
In-the-money – this term is used in order to describe the situation when you have predicted the movement of the asset price correctly and the binary option is profitable.
Out-of-the-money – this term describes the situation when you have wrongfully predicted the assets price movement, rendering the binary option a loser.
Rate of profit – this term represents the percentage of money that the trader gets as return after a trade expires in the money.
Fundamental analysis – this is one of the topics that will be extensively covered in the next parts of the tutorial, but for now all you need to know is that the fundamental analysis represents a way to evaluate a stock, currency, or commodities fluctuations based on such political, geopolitical, demographic, macroeconomic factors and others.
Technical analysis – another topic that will be thoroughly covered later. It is an analysis methodology that uses primarily chart patterns to help you predict the direction an asset might move. Generally it ignores fundamental factors and is based mainly on historical price data and volume.
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