Many people know that financial assets comprise the basis of all binary options trading. Financial assets come in multiple different varieties, including stocks, indices, forex and commodities. Within each of these categories are multiple assets. Stocks are the most abundant financial asset category, comprising public companies like Google, Facebook, Rio Tinto, BHP Billiton, Anglo American, Glencore PLC, Bank of America, Coca-Cola Company etc. Commodities include any tradable asset such as gold, platinum, copper, crude oil, wheat, coffee and so forth.
Forex encompasses all of the currency pairs that you can trade including the USD/CAD, GBP/EUR and others. Indices like the NASDAQ, Dow Jones Industrial Average and CAC 40 are also important financial assets that binary options traders work with. Once you know which financial assets you wish to trade, it is good practice to read up on that particular asset in order to stay abreast of important economic indicators that will impact upon it. As a binary options trader, you have access to all 4 of these asset categories. Your goal is to use the right strategy on the right asset to achieve maximum profitability.
Public companies are able to sell shares to people via the stock market. By purchasing a share, a trader or investor is taking a stake in the company. Shares can be bought and sold freely, provided the rules and regulations have been adhered to. When a company is successful, its share price increases and its market capitalisation will increase accordingly. Shareholders are typically rewarded in the form of dividends, higher share prices and a greater return on investment. The converse also holds true, and shareholders stand to lose their initial investment if the share price decreases. The thing about trading binary options stocks is that you don’t need to pay the full share price in order to trade the share as a binary option. You can make a trade on a binary option stock from as little as $1 and you will know precisely how much profit you stand to make before the trade has been initiated.
Likewise, you will know how much you stand to lose before the trade has been initiated. With binary options you are limited to your initial investment in terms of losses that you can suffer. As such, binary options have become increasingly popular financial assets since you don’t have to take ownership of any shares – you can simply profit off their price movement. There are many different types of binary options stocks that you can trade including Google Inc, Facebook, BP, Apple and so forth. What makes them so appealing is that most traders – even novice traders – are already familiar with many of these stocks. Many companies are household names. Most of the factors that affect stocks can be anticipated, such as interest rates, dollar strength/weakness, geopolitical events, oversupply, market weakness and volatility etc. By understanding the factors that affect stocks, you can make an assumption as to the direction they will take.
As mentioned earlier, commodities are tangible items that are bought and sold in the global marketplace. These include all manner of real-world goods such as silver, gold, platinum, beef, spices, cotton, lumber and so forth. Commodities are impacted by the strength or weakness of the economy, as was evident when the Chinese equities meltdown took place. Geopolitical stress factors, oversupply, inventory levels, competition and myriad other factors impact on commodities prices. For the most part, these assets are traded in the form of futures with delivery set at 3 months or more. Typically, prices will be high once the contract has been opened, but midway through the 3-month contract, activity begins to decline. When you’re trading commodities, it is imperative to stay focused on all of the factors – the economic data – that can impact on the price of your commodity. Remember that speculators and sentiment drive the commodities markets as much as they do the equities markets. Prices rise and fall at the click of a button and for this reason it is important to keep your finger on the pulse.
Indices are effectively the markets that allow you to trade equities and commodities. These financial markets abound all over the world, and include the Johannesburg Stock Exchange, the London Stock Exchange, the Dow Jones Industrial Average, the NASDAQ, the FTSE 100 and so forth. Indices cover all of the financial markets for all sorts of stocks including technology stocks, industrial stocks and others. When you trade binary options indices, you’re trading the direction of movement of a particular index. Indices are impacted by the components that comprise them. When technology stocks suffer as a result of an asset bubble, the index for those technology stocks will likewise contract. The Dow Jones has enjoyed a multi-year bull run, but it can just as easily change direction and turn bearish if factors permit. Indices differ in the number of companies that comprise them, with some comprising just 10 companies, while the S&P 500 includes 500 companies. The good thing about trading indices is that they are less volatile than individual stocks, because they typically take the best performing companies in the index. The FTSE 100 index is a compilation of the top 100 companies in the UK.
Currency trading is the world’s most active market. It is decentralized, and it exceeds all other markets combined. The value of currency trading at any given time is between $3 trillion and $4 trillion per day – making this the world’s most-heavily traded market. When you trade currencies, you are buying one currency and selling the other currency in the pair. For example the GBP/USD pair represents how many dollars are required to by 1 British Pound Sterling. When that number increases it shows that the pound is increasing in value because more dollars are needed to buy each pound. When you trade this pair as a binary option, you’re simply saying that one currency will appreciate relative to the other, irrespective of how much it strengthens. Recall that only the direction of price movement matters – not the actual size of price movement. In order to benefit from trading in the currencies market, volatility is required. Volatility allows for swings in the relative prices of currencies, providing opportunities for traders to generate substantial profits. There are major currency pairs and minor currency pairs, with the former being the most heavily-traded currency pairs in the market.
There are many assets within each of these 4 asset classes. Whether you are a novice trader or an experienced trader, you can benefit by diversifying your portfolio to include many of the assets that you understand. It is a good idea to start your binary options trading sessions with assets that you like, since these are the ones you’re more likely to follow on a daily basis. By applying different tactics and strategies, you will soon learn how best to dabble in the markets so that you can generate the most profit off your preferred tradable assets.