Asset Types Revealed And Explained
Binary options trading is all about the movement of various assets. When you trade, you don't buy any shares or bonds. Instead, you are trading on change. Now there are many different types of commodities, stocks, indices and currencies to choose from, the number available will vary depending on what is offered by your brokers.
When you trade you decide whether or not you think that particular asset will rise or fall in price. You choose the expiry time (let's say 30 minutes) and then you wait to see if the outcome of your trade is as predicted. Get it right, and you win money, get it wrong, and you lose your original trade amount.
Let's say for example that the price of gold is rising. Now while it may be trending upwards over a sustained period how do you know that it is going to remain steady for the period that you choose? It is all about studying the markets, selecting a trading type and making your move confidently.
In this guide, you will learn:
- The different asset types available to trade
- Which of the sectors you should trade in
- Typical assets within each different category
The Various Asset Types
When a trader places a binary options trade, they are essentially predicting the movement of that asset. Will it rise or fall in price within a certain amount of time? For some traders, they may have an affinity with a particular market, product or stock. It may be that they have studied the price of gold or silver or that they feel very comfortable with currency pairs (Forex) and how they will react.
The asset types fall into various categories which are commodities, indices, stocks and currencies. You will trade currencies in the form of Forex pairs; how a currency pairing will move against each other. Some brokers have lots of different pairs available to trade on while others have much fewer.
For some brokers, they only offer the most popular assets like gold. There might be as few as 20 while other brokers can provide more than 200. How many assets a broker offers might make the difference in whether or not a trader chooses them.
There are many different types of commodities, stocks, indices and currencies available to trade.
Trading on Currencies
You trade currencies in pairs. You can't predict the movement of a single currency unless you have another to compare it. So with currency trading, you are trading on a pair. For example, it could be the USD against the CAD or the USD against the GBP.
As you can imagine many different pairings exist, but some are more popular than others. The common currencies are the USD (United States Dollar), the GBP (Pound Sterling) the Euro, AUD (Australian Dollar) and JPY (Japanese Yen). The typical pairings you might see are GBP/EUR, USD/CAD, EUR/NZD etc.
Like other binary options, the idea is to predict the movement of these pairs in a particular direction before the expiry time. In the case of the GBP/EUR, the pound is the base currency, and the Euro is the quote currency.
There are certain political and news factors that can affect currencies performance. Presidential campaigns, general elections and referendums will all have a considerable impact on performance, so it is always essential to ensure that you are trading in a period of stability and not when huge announcements being made.
Trading on Commodities
What are commodities? Well, they are naturally occurring products that are either found in the ground around us, from rocks and mountains to under the sea. These raw materials include precious metals like gold, platinum and silver and light sweet crude oil.
Other commodities include those products that are grown and used in the production of other products. These are grown and harvested in vast volumes across the world and are a huge part of our everyday consumption.
These primary agricultural products include commodities like coffee, sugar, wheat and corn. The list of commodities isn't exhaustive, and some of them aren't popular asset types; however gold and oil, in particular, continue to be big assets when it comes to binary options trading.
Trading on Stocks And Indices
There is a difference between trading in stocks and trading in indices. There are many different indices that you can trade on in the binary options arena. These include popular indexes like the NASDAQ, The Dow 30 and the FTSE 100.
When you trade on these indices, you aren't trading on the movement of individual stocks and shares as you are when trading in stocks, just the performance of the index as a whole. If you decide to trade on the FTSE 100, for example, you are predicting whether you think the value of the FTSE 100 companies will rise or fall in a specific amount of time.
It may be that you know that the top stocks are doing particularly well or a particular sector is doing well. Often these indexes are made up of some companies from the same industry. If you prefer instead to invest your money trading in one particular stock or some stocks, then you can choose stocks as opposed to indices.
If you know your markets and can identify the particular trends, then it may be that you are more suited to trading in stocks and indices than commodities or currencies.
Most traders find that they lean towards a particular asset type and you might see that you have your specific favourite. Some might use the opportunity to make hay while the sun shines when specific factors are affecting the markets. Whatever you choose you should understand the markets you are trading in and know that the markets can change in a short space of time.
Jacob has been an author for us since our launch in 2012. He has over forty years’ experience in the financial sector and has held a variety of positions within financial services corporations and venture capitalist organisations. Learn more.