At the Money (ATM)
A trade outcome in which the digital options trader receives a refund of the investment amount due to the fact that the asset price at the end of the expiry time was exactly the same as it was when the contract was purchased.
A financial instrument that can be used to trade based on the prediction of asset price changes. In digital options trading, stake in the asset is not purchased. This allows traders to profit from both asset value increases and decreases. Also referred to as digital options, binary options trading has become an increasingly popular trading method over the past few years.
Digital Options Trading
The process of making a prediction and purchasing a contract based on the prediction. Trading will also require a selection of the contract expiry time period. All trading takes place within a broker platform, with the broker being responsible for issuing payments to traders who earn profit.
Digital Options Broker
Each trader may select one or more brokers to partner with. Each broker will provide an online trading platform within which all trades will be executed. Many brokers also provide extras such as trading tools and educational tools which teach individuals how to trade.
The price of an asset at the current time. This information should come from a reliable financial data source such as Reuters or Bloomberg. The current price of an asset will be displayed within the broker platform and should be factored into investment decisions.
A practice account that can be used to learn how to trade digital options or assess the broker platform. Demo accounts are offered by many brokers, with most being offered free of charge. Demo accounts are temporary, either being provided for a set period of time, or expiring after fictional account funds have been used.
Expiry Date and Time
The day and time at which the digital options contract will expire. Traders are allowed to select this date and time on each trade from the expiry options provided by the broker. Different levels of expiry dates and times will be available on different trade types.
A contract purchased based on the prediction of the increase in the price of an asset within a specific period of time.
In the Money (ITM)
When a trade ends with the trader profiting, it has ended in the money. In most cases, this will not be determined until after the expiry time period has passed. However, in some trade types the trade can end in the money prior to the end of the time period.
Out of the Money (OTM)
A term used to describe a loss of the investment amount of a trade. Should an incorrect prediction be made, the trade will be considered out of the money at the end of the expiry time period.
The percentage of the investment amount that will be awarded to the trader should a correct prediction be made. This percentage can vary by broker and may also vary by trade type.
A contract purchase based on the prediction of the decrease in the price of an asset within a specific period of time.
A plan of action that pertains to trading. Digital options strategies can relate to specific assets, specific trading time periods, trade types, and more. Strategies are commonly used in trading, with the goal being to use them in an attempt to limit risks and increase profits.
The purchase price or set price of the asset at the time of a contract purchase. The strike price will be used to determine whether the trade has ended in the money or out of the money at the end of the expiration time based on the prediction and contract purchase initiated by the digital options trader.
Charts, graphs, and more that are used to perform analysis prior to making a contract purchase decision. Many digital options tools are included within the broker platform.