When trading binary options, it is particularly important for those who are new to this form of trading to establish a solid foundation. This will include the need to learn more about the assets which are available for use in each trade. Stocks, currency pairs, commodities, and indices are the primary four classes. Most brokers provide an abundance of underlying assets to choose from, which is excellent, but can also present some challenges to the novice trader.
Research and analysis will help with the decision making process. It is absolutely necessary to research market conditions prior to executing each trade. All trades have an associated expiry time, with most lasting one hour or less, which means that studying market conditions over the short term is going to be a possibility. More extensive analysis will be required on longer term trades, but novice traders are free to avoid lengthy expiration times when first starting out.
No single asset class is better than the others. Each will present a number of benefits, as well as a few drawbacks. The following factors should be considered when making a selection…
Trading currency pairs in binary options format is not the same as trading standard Forex. If you’ve traded FX in the past, some aspects of analysis will be the same, but some will be different. Each broker will offer an average of 12 to 20 currency pairs to choose from. Extended trading hours may also be offered due to the fact that the Forex market is open for trading longer than the standard markets are.
Currency pair values are impacted by the fact that they are traded in large volumes. Price action can be highly erratic and prices can certainly change very quickly. When price movements are volatile, technical analysis can be quite challenging. Fundamental analysis will be less of a challenge, as it can be easy to identify the root causes of why investors are buying or selling a particular currency at a particular time.
Indices represent the value of all of the stocks found within them. This does not mean, however, that one stock does not hold the power to impact the overall value of the index. Indices do have a strong tendency to trend when investment sentiment is strong, a fact which benefits binary options traders. Price reversals are also common, as it does not require any major event for investors to change their minds. The best time for index trading is typically just after the release of any important economic data or earnings reports released to the stocks within the index.
Stocks are the preferred asset group of many who trade binary options due to the fact that they are easily recognizable, and it is easy to find market news related to each. While stocks prices can be influenced by various economic indicators when selling or buying volumes are erratic, this asset group is primarily influenced by company-specific financial reports, as well as productivity data. The best time for trading stocks will be just after these reports are released.
Commodities are traded based upon the future price of each item. Futures contracts are valid for a period of months, and the best time for trading with this asset group will be at contract opening, as well as mid-way through the contract. Commodity prices are highly impacted by related financial reports. Furthermore, many commodities can be impacted by adverse weather, politics, local laws, and natural disasters.
The more you know about typical asset price performance, the more you’ll earn from binary options trading. With time and experience, the task of analysis will become much easier and less time consuming. Every asset group presents many different profit opportunities, so while you may find that you prefer some groups over the others, keep as many options open as possible so as to generate the largest overall profit amounts.