What asset types are available to trade in binary options?

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Whilst binary options are simple and quick to understand compared to more traditional forms of option trading the calculations behind the pricing of them are complex and sophisticated. It is for this reason that binary options are increasingly becoming regulated by financial regulators in many jurisdictions compared to being regulated under the umbrella of gambling. There are still certain jurisdictions that allow binary options to fall under the remit of gambling but the list is getting smaller.

The type of assets to trade in with regards to binary options trading depend very much on which financial markets the individual trader wishes to focus on. In general there four asset classes available to binary option traders, with most if not all binary option brokers offering a selection of each.

  • Commodities
  • Forex
  • Indices
  • Stocks

Each of the above mentioned asset classes have different characteristics and have different influencing factors. Although as previously mentioned binary options are simpler and less risky than the traditional financial instruments, traders must still be aware of the fundamental factors that can cause the underlying asset prices to fluctuate. In other words, traders must all ways be aware of both macro and micro factors that affect the respective markets. Making profits with binary options trading is dependent upon traders selecting the right category of asset to trade in.

The Commodities Market:

The Commodities market deals with raw and unprocessed products from the mining, oil and agriculture industries. In this market, you are able to trade the likes of Crude oil, natural gas, gold, silver, copper together with many other organic products cotton, coffee, cocoa and concentrated orange juice. The Commodities market is special in that the prices are moved more by expectation of the future than what is happening at that moment in time you are trading. The prices reflected in the commodities contracts actually represent what the market is willing to pay for them sometime in the future. Futures contracts are usually for a three month duration but certain contracts can be longer or shorter.

The Forex Market:

Forex trading is best described as trading currency pairs such as the British Pound against the U.S. dollar (GBP/US) There is a great deal of volatility in the Forex market, so the potential for profit is high. When trading currency pairs it is essential that a trader is aware of any major economic news that is due out, especially from central banks such as the Federal Reserve, European Central Bank and the Bank of England as their releases can have a direct influence on a particular currency pair. There are plenty of free resources available online which show the upcoming economic data releases along with forecasts to assist a trader.

The Index Market:

The index market is very similar to the Forex market in the sense that trading is generally done electronically and available 24 hours a day; however in binary options you will find that you can only trade when that market is physically open and not when closed.

The index market is quite liquid as it comprises of a package of assets bundled together to be traded as one. In this respect, it is easier to trade than having to deal with individual stocks. However because of this bundling, the index market is not as price sensitive as individual assets. Some indices have a lag before they respond to the market trends. Although the index market is used to represent the longer trends, they can easily make a turnaround as result from the impact of an immediate knock-on effect of an economic situation. As the value of indices depends on a selected number of stocks, binary options’ trading is best done when major announcements are made by companies that are a constituent of that index. A good understanding of each index is essential as they all react differently to the market trends and market news.

The Stock Market:

Stocks from many popular multinational companies are covered by the Binary options market. Even though the performances of stocks are affected by macro economic factors, they are affected to a greater degree by news emanating from their respective industry as well as their financial performance. Traders will find that the best time to deal in binary options for individual stocks is when these companies announce their quarterly, half yearly or annual earnings.

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Written by Barry Jenkins

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