Basic Knowledge (3) Explanation of Binary Options Terms ~ IG Securities-Specific Terminology ~ and How to Read Trading Results

This article explains terminology unique to IG Securities Binary Options and how to read trading results.

Term “Maintenance Margin”
In short, it is the purchase price of the option.

In other companies’ FX binary options, when you purchase an option, the option price is deducted from your account, but in IG Securities’ Nikkei 225 binary options, when you purchase an option, the purchase price is locked as maintenance margin.

This mechanism exists because, in stock index accounts, CFD trading is also available besides Nikkei 225 binary options, so the option purchase price is locked as margin as well.

When the option is settled, the maintenance margin decreases by the purchase price, and the profit or loss from the option is added to or subtracted from the account balance.

Term “Points”
Unlike other FX binaries that express option value in currency units (yen), IG Securities expresses it in points on a scale of 0.0 to 100.0.
This is presumably because the system supports multiple currencies.

Points × Lot × 1000 = Yen

This is the relationship.

Term “Bid Price, Ask Price, Buy, Sell”
In other companies’ FX binaries, the purchase price and settlement price per option are shown simultaneously.
For example, for an option on a “certain ladder,” four prices are shown: the purchase price and settlement price for an option that will exceed a certain ladder, and the purchase price and settlement price for an option that will fall below a certain ladder.

However, IG Securities’ binary options show only two prices: bid and ask. Also, you either buy or sell the option that predicts “exceeding a certain ladder.” (This is one reason the IG Securities binary options might feel harder for users accustomed to domestic FX binaries.)

If you predict that the rate will exceed the ladder, you buy the “exceeding a certain ladder” option. In this case, the bid price is the option’s purchase price, and the ask price is the option’s settlement price.

If you predict that the rate will fall short of the ladder, you sell the “exceeding a certain ladder” option. In this case, “100 − ask price” is the option’s purchase price, and “100 − bid price” is the option’s settlement price.

How to Read Trading Results

With the above in mind, I will explain how to read trading results with a concrete example.

It's a bit old, but these are results from November 27, 2014.

First, profit and loss. Each position is shown on a single line of data.

The “entry price” and “settlement price” are displayed in “points.” From these, along with the “number of trades,” you can calculate the maintenance margin and profit or loss.

Line 1: ±180 range buy (meaning maintain the range)

Maintenance margin: 76.3 × 10 × 1000 = 763,000 yen

Profit or loss: (100.0 − 76.3) × 10 × 1000 = 237,000 yen

Line 3: 17,300 ladder sell (meaning the closing price will be below 17,300)

Maintenance margin: (100.0 − 28.3) × 10 × 1000 = 717,000 yen

Profit or loss: 28.3 × 10 × 1000 = 283,000 yen

Next, how to read the trading status. Each data entry corresponds to a user-initiated order or an automatic settlement by the system.

There is a column labeled “Route,” which indicates the type of order. If it says “Web,” it means user purchase or interim settlement; if it says “System,” it means automatic settlement (upon expiration time, or when the range or touch conditions are met).

The column “Number of Trades” shows the lot count with a plus sign for buys and a minus sign for sells. Line 6 shows selling 10 lots of the 17,300 ladder, displayed as “-10.” Line 3 shows a position in which 17,300 ladder 10 lots sell was automatically settled (i.e., bought), so it is shown as “+10.”

Foundations (1) What is Binary Options
Foundations (2) How Option Prices Are Determined
Foundations (3) Binary Options Glossary — IG Securities Unique Terms — and How to Read Trading Results
Foundations (4) Three Styles of Trading
Benefits of Nikkei 225 Binary Options
How to Open a Demo Account
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