Trading and Investment Glossary
An underlying asset is the security of which a derivative contract is based on. It could be a currency, commodity or stock index that gives a derivative its value. For example, an investor who buys an AUD/USD option on the Zen Trader platform has made an investment based upon the future direction of the underlying asset, i.e. the AUD/USD currency pair.
At The Money
At the money is a phrase used in binary options trading which describes an asset’s current market price relative to the price the option was bought or sold. In other words, it’s when an option’s strike price is identical to the price of the underlying security. For example, if I purchased a EUR/USD High call for 1.1250, the option is considered “at-the-money” when the price of the asset is 1.1250.
A bearish market is a term used to describe a general downtrend in an asset’s price over time, normally around 20% from the high point. It is used to describe a period where asset prices consistently fall.
Binary Options are a straightforward way for an investor to trade on the future direction of an asset. The word Binary, which means two, refers to the outcome of the prediction the investor had made – High or Low. They are predicting if the price of an asset will be higher or lower at a predetermined time in the future. If the prediction is correct the investor will receive a fixed payout as return on their investment. If incorrect, the investor will lose the investment amount.
Black Swan Event
A black swan event is a term used to describe an occurrence or movement in financial markets that is outside what is normally expected or could be foreseen. Such events are usually very difficult to predict as it has not occurred previously, making risk management very difficult. One example is the violent price movement in the EUR/CHF currency pair after the Swiss National Bank (SNB) in 2015 suddenly announced the removal of the 1.20 currency floor. Within a few hours the EUR/CHF currency pair traded as low as 0.85.
A boundary instrument is a type of binary options trade which involves a target price varying within two price levels. If the price ends up within or outside those levels, the trade wins or loses accordingly.
A broker is an individual or institution that brings together buyers and sellers. Binary option brokers provide investors access to markets, and enable them to place high and low binary options trades on currencies, commodities and stock indices.
Brokers also operate in other financial asset classes including equities, ETFs, commodities and futures markets. They provide clients the means to execute their orders by phone, in person or computer based platform.
A bullish market is a term used to describe a general uptrend in an asset’s price over time, normally around 20% from the low point. It is used to describe a period where asset prices consistently rise.
A call option or high trade in binary options trading is a trade entered into when the investor believes that the underlying asset’s price will go up within a certain period of time. To put it simply, if you believe the price is going up, buy a call option or enter into a high trade.
A contract in binary options trading is an agreement between the investor and the broker to enter into a transaction on an underlying asset at an agreed strike price. The two types of contracts in Zentrader trading are call (high) and put (low) options, which an investor will purchase based on their view of the future direction of the asset.
A commodity is any homogeneous good traded in bulk on an exchange. Gold, silver, copper, crude oil, coffee, bitcoin, electricity and livestock are all examples of commodities that investors currently trade in today’s market. To be considered a tradable commodity, an item must be standardised, usable, and the price must vary enough to justify creating a market.
Currency is a medium of exchange for goods and services, making payments, and measuring the value of an item. Currencies are backed by their respective governments and central banks around the world and are guaranteed as legal tender.
A demo trading account is one that allows a trader to test and review the features of a online trading platform before depositing real funds into the account or placing real trades. They allow traders to get comfortable with all aspects of placing a trade and refining their trading strategy or plan, without taking on any risk. The demo platform as offered by Zen Trader gives the trader access to real live market data.
A deposit is a funds transfer initiated by an individual or company that adds credit to their account. These funds can then be withdrawn, transferred or used to purchase goods or services. A deposit is often used with respect to financial brokers, banks or other deposit taking institutions.
Early closure refers to closing out a trade before the scheduled expiry time. It gives the investor the ability to close a position they hold for an agreed payout price. This is often used as a stop loss, a common risk management tool or to lock in profits.
Expiry time is when a binary options trade has completed its duration. The expiry time is a specific deadline to a binary options trade at a particular time and day. Traders on the Zentrader platform can enter into or sell an option position at any time up to 1-minute prior to the scheduled expiry time.
Forex is an abbreviation for the global Foreign Exchange market where currencies are traded. It is the largest market in the world in terms of volume traded and is decentralised, meaning there is no central exchange. Trade is conducted between market participants which include the likes of central banks, commercial banks, hedge funds and speculators.
High/Low is the highest and lowest point that a given asset has traded in the past. Some traders view the 52-week high or low point as an important factor in determining an asset’s value and future direction. When as asset forms a new 52-week high or low point, investors often view this as a significant event and some use this metric as a basis for their investment decisions.
An Index is a numerical composite that measures overall changes in financial markets or in the economy. Is is often used as a summary for how an asset class is performing over time.
In financial markets, indexes measure the broad price movements of equities, bonds, commodities and volatility markets. Indexes frequently change based on market prices of individual index components and percentage weighting of assets in a particular index. Some key examples of indexes are the Nikkei, Dow Jones, CPI (inflation) and VIX (volatility).
Instrument (Financial Instrument)
A financial instrument is a type of asset which can be bought or sold and are commonly divided into two categories: cash and derivatives. The values of cash instruments are determined by the buyers and sellers in the market. The value of derivative instruments are based on the underlying asset and other factors such as volatility, future market expectations and liquidity.
In The Money
In the money is a phrase used in binary options trading which describes an asset’s current price relative to the price the option was bought or sold. In other words, the price is either above or below the price at which the investor entered the trade and in the direction they had correctly predicted. If a trade expires in-the-money, the investor receives the agreed payout from the broker.
An investment amount is a sum of money that is used to purchase an investment with the hope that it will generate a return. In terms of binary options trading, an investment is the initial value of the option contract purchased.
In binary options trading, a spread is the difference between the current High (buy) and Low (sell) prices of an asset. This is also referred to as the bid/ask or buy/sell spread in financial markets and gives the investor a price at which they can immediately buy or sell an asset.
An inbound option is similar to a boundary investment which involves a target price within two price levels. If the price ends up within or outside those levels, the trade wins or loses accordingly. The investor must speculate if the price will be within an agreed price band by the time of the option expiry.
Market analysis is the evaluation of a particular tradable asset, market sector, or an entire market which aims to draw conclusions on the future direction of the analysed price. Market analysis is completed in a hope to better understand a potential investment and give the investor a statistical edge over other participants in the market.
The market price is where a particular asset is currently being bought and sold in real time. The market price is determined by the number of buyers and sellers at a point in time, and it can fluctuate based on many factors including supply and demand, news, economic data or political events.
A No Touch is a type of option which gives an investor a fixed payout if the price of the underlying asset does not reach a certain price level(s). An investor using this type of option chooses the price level(s), duration of the option, and receives an agreed payout should the price remain between these set parameters.
A one touch is a type of option that gives an investor a fixed payout if the price of the underlying asset reaches a certain price level. An investor using this type of option chooses the level of the strike price, duration of the option, and agrees on a payout should the price reach this certain level.
An outbound option is similar to a boundary investment, only it refers to an expiry price outside two target price levels. When the price on the option has expired outside those levels, the trade does not payout to the investor.
Out of The Money
Out of the money (OTM) is a binary options term used to describe an investment that the investor will currently not receive a payout on. It refers to the scenario where the asset’s price has moved above or below the trade entry price and the investor has not correctly predicted the direction.
A put option or Low trade in binary options is a trade entered into when the investor believes that the underlying asset’s price will go down before the expiration time of the option. To put it simply, if you think the price is going down, buy a put option or low trade.
A refund is paid to an individual by a government due to overpaid taxes. An individual may receive an income tax refund after completing their annual taxation return. A refund can also refer to when an organisation will refund a transaction between a customer and the organisation for a variety of reasons including defective merchandise or incorrect purchase of an item.
A return refers to the gain or loss in the value of an asset held by the investor over a period of time. A return is often divided into two components, dividend or income payments received by the investor and the capital appreciation of the asset in the form of capital gains.
Risk management is about identifying, analysing and controlling the amount of capital an investor is willing to stake on a particular investment. Risk management attempts to quantify the amount of money that could be lost when entering a trade and can determine the subsequent action (e.g. stop loss trade) if the investor were to experience an unfavourable outcome once the trade was initiated.
A stock or equity is a security that gives the investor partial ownership of a business and provides exposure to an organisation’s earnings and assets. This could be in a private company, or a public company that is listed on a major exchange such as the Nasdaq or Nikkei.
A strike or purchase price in binary options trading is the price at which the investor has entered into the trade on a particular asset. The type of option purchased, call (high) or put (low) and the price at which the asset is currently trading will determine whether the investment is currently In-The-Money or Out-of-The-Money. The entry price is also sometimes referred to as the “trading strike”.
A trading plan will outline an investment process by defining what, why, when, and how to invest in the markets. A trade plan will consider psychology, risk management, reward expectations, and outline a trading system or strategy. Investors often use trading plans to minimise mistakes and quantify potential losses.
Underlying Asset Types
Underlying assets consist mainly of currencies, commodities, fixed income, individual stocks and indices. An underlying asset is the security of which a derivative contract is based on, and is the main component in determining the derivative’s value. For example, an investor who buys a High or Low AUD/USD option on the Zentrader platform has made an investment based upon the future direction of the underlying Australian Dollar (AUD/USD) asset.
A withdrawal occurs when an investor requests to removes funds from their account. A withdrawal can be received by the investor via a number of methods including bank transfer, credit card and bitcoin payment. The available withdrawal methods vary according to the initial funding method and country of residence.