Binary Options Dictionary

Expiration Date: The time that the option expires.

Settlement Value: The value of the option on expiration. It will be $0 or a $100 fixed payout at the Nadex Exchange.

Underlying Market Price: The actual real-time market price of the contract.

Contract: This is the basic unit of a trade of one lot.

Bid: The premium price that traders pay for opening to sell a contract or closing a buy order.

Sell: This is when betting the underlying market will go down. A trader puts on an open sell order. At Nadex (similar to online binary option platforms) the trader pays for an open sell order which is $100 – bid. This is the same as putting on a position anticipating a drop in the price of the underlying market. Lastly it is the premium price that a trade pays for closing a position that was bought.

Ask: The premium price that traders pay for an opening to buy a position. This is essentially anticipating that the underlying market price will go up. It is the price paid by a trader who has an open position to sell and wants to close it out.

Spread: The difference between the bid and ask. The spread tends to be narrow in a new market as the volume increases. When discussing binary options the spread has to be interpreted in terms of the total return.

Bid size/Offer size: This reflects the number of positions being bought or sold.

Commission fee: The trader will pay a commission fee per transaction. Nadex charges $1 per transaction. Online binary option brokers have to pay fees to its software provider (also called the platform) as well as Nadex. Onine Binary Option Brokers usually operate with a small commission around 2.5%.

Set-and-let: When you take a position and do not trade in the same market until the time frame expires and the bet is settled. You basically sit and wait till you find out whether you win or lose.

ROI: Return of Investment