You will learn about the following concepts
- When Does a Trade Expire Out of The Money?
- Possible outcomes of the trade
The Term That Traders Hate to Use
In the next part of our tutorial we will talk about another popular term which is, however, despised by traders. Expiration out of the money is the situation, where the asset’s price goes into the wrong direction when the expiration time comes, and you end up losing your investment. We have already explained what it means for a trade to expire in the money.
When Does a Trade Expire Out of The Money?
As you already know, when trading binary options there are only two possible outcomes of the trade – you either win or lose. In the last article of our tutorial, we explained the concept behind expiration in the money as well as the meaning of this term, but now it is time to take a closer look at what happens when you lose a trade.
You already know that some of the main characteristics of a binary options trade are the strike time, the strike price and the expiration time, so it should not be a problem for you to understand what expiration out of the money is. Let us say that you are planning to place a put option at 14:00 GMT on the EUR/USD pair which has a current value of 1.3350.
Therefore, the strike price is 1.3350 and the strike time is 14:00 GMT. The next step is to choose the expiry time of your trade – in this case we will assume that you have selected “1 hour”. This means that your trade will expire at 14:59 and you’ll find out if your prediction was right or wrong. At 14:59 you see that the current price of the EUR/USD is 1.3360 which means that the asset’s price went up. Since you placed a Put option, this means that you predicted that the price will go down after one hour. However, it is not unusual for the price to go up, so the trade expires out of the money and you end up losing the money you placed on this bet.
In short, when a trade expires out of the money you are on the losing side. This is why most traders hate using this term, because it usually means that their prediction did not turn out to be correct. Now that you are aware of some of the main characteristics of binary options trading, it is time to move forward. In the next two parts of our tutorial we will discuss binary options trading hours and the most important characteristics of binary options brokers.