What is the Market Price in Binary Options? – Definition


In binary options trading, the term “market price” refers to the current value of a stock, commodity, or currency. Essentially, it’s the price a trader receives when selling an option or the value at which an asset can be bought.

Unlike the strike price, the market price of an asset is not fixed. That means the market price keeps on changing during the option’s life. 

Market Price in a nutshell

  • Market price is the current value of stocks, commodities or currencies when trading binary options.
  • Unlike the strike price, the market price fluctuates based on supply and demand dynamics.
  • Determined by economic factors and market trends, it comprises intrinsic value and time value components.

How is the Market Price determined? 

The market price is determined by the forces of supply and demand in the market. Factors such as economic indicators, news, investor sentiment and market trends influence the dynamics of supply and demand, thus affecting the market price.

Although market price is not fixed, it can be easily determined. For example, to know the market price of a given asset, you can calculate the demand of a particular asset and the interaction of supply. 

Parts of the Market Price 

Market price components, commonly known as parts of the market price, encompass two fundamental elements: intrinsic value and time value.

Intrinsic value

Intrinsic value signifies the straightforward assessment of an asset’s worth, derived from the variance between its market price and the predetermined strike price. For instance, if an asset holds a strike price of $20 and is currently priced at $30 in the market, its intrinsic value would amount to $10.

Time value

On the other hand, time value is the additional premium assigned to an option, based on factors such as time to expiry, market volatility and interest rates. Time value represents the potential for an option to realize a value in excess of its intrinsic value before expiry.

In certain scenarios, both intrinsic value and time value of an option may dwindle to zero. During such instances, the asset’s overall value diminishes correspondingly, as there exists neither profit nor loss potential upon the asset’s purchase or sale.

Conclusion 

The market price is one of the important components of binary options trading. Some binary options trading is possible when the market price is higher than the strike price, while others are possible when the strike price is higher than the market price. 

Read other important articles in the binary glossary.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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  • Davut

    says:

    I noticed that the prices in the Forex market and the prices in the binary options market are not the same. So is there a price chart where we can look at the price of the options market? because I wanted to enter the options market with technical analysis.